0000912057-95-006482.txt : 19950815
0000912057-95-006482.hdr.sgml : 19950815
ACCESSION NUMBER: 0000912057-95-006482
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 19950630
FILED AS OF DATE: 19950814
SROS: NONE
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: INTERLEAF INC /MA/
CENTRAL INDEX KEY: 0000793604
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372]
IRS NUMBER: 042729042
STATE OF INCORPORATION: MA
FISCAL YEAR END: 0331
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-14713
FILM NUMBER: 95562974
BUSINESS ADDRESS:
STREET 1: PROSPECT PLACE
STREET 2: 9 HILLSIDE AVE
CITY: WALTHAM
STATE: MA
ZIP: 02154
BUSINESS PHONE: 6172900710
10-Q
1
FORM 10-Q
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
COMMISSION FILE NUMBER 0-14713
[Logo]
INTERLEAF, INC.
(exact name of registrant as specified in its charter)
Massachusetts 04-2729042
(State or other jurisdiction (I.R.S. employer identification number)
of incorporation or organization)
Prospect Place, 9 Hillside Ave., Waltham, MA 02154
(Address of principal executive offices) (Zip Code)
(617) 290-0710
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the issuer's Common Stock,
$.01 par value, as of July 31, 1995 was 14,519,924.
===============================================================================
INTERLEAF, INC.
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated balance sheets at June 30, 1995 and March 31, 1995.......... 3
Consolidated statements of operations for the three months ended
June 30, 1995 and 1994.................................................. 4
Consolidated statements of cash flows for the three months ended
June 30, 1995 and 1994.................................................. 5
Notes to consolidated financial statements............................... 6
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 7
PART II - OTHER INFORMATION
Item 5 - Other Information............................................... 10
Item 6 - Exhibits and Reports on Form 8-K................................ 10
SIGNATURE................................................................ 10
2
INTERLEAF, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
June 30, 1995 March 31, 1995
In thousands, except for share and per share amounts (unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $12,624 $10,441
Accounts receivable, net 17,766 22,766
Prepaid expenses and other current assets 2,063 2,122
------- -------
TOTAL CURRENT ASSETS 32,453 35,329
Property and equipment, net 9,966 11,058
Intangible assets 4,115 3,801
Other assets 457 605
------- -------
Total assets $46,991 $50,793
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,351 $ 2,687
Accrued expenses 15,150 16,193
Unearned revenue 14,758 15,649
Other current liabilities 2,628 5,024
------- -------
Total current liabilities 34,887 39,553
Other liabilities 21 625
------- -------
TOTAL LIABILITIES 34,908 40,178
------- -------
Contingencies
SHAREHOLDERS' EQUITY
Preferred stock, par value $.10 per share, authorized 5,000,000
shares:
Series A Junior Participating, none issued and outstanding
Senior Series B Convertible, issued and outstanding,
1,728,573 shares 173 173
Common stock, par value $.01 per share, authorized
30,000,000 shares, issued and outstanding 14,481,459 at
June 30, 1995 and 14,203,027 at March 31, 1995 145 142
Additional paid-in capital 68,437 67,382
Retained earnings (deficit) (56,798) (57,269)
Cumulative translation adjustment 126 187
------- -------
Total shareholders' equity 12,083 10,615
------- -------
Total liabilities and shareholders' equity $46,991 $50,793
======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
INTERLEAF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended June 30
1995 1994
(unaudited)
In thousands, except for per share amounts
REVENUES:
Products $ 9,437 $ 6,590
Maintenance 7,792 7,441
Services 5,898 5,209
------- -------
TOTAL REVENUES 23,127 19,240
------- -------
COSTS OF REVENUES:
Products 1,660 2,148
Maintenance 1,369 1,574
Services 4,809 4,737
------- -------
Total costs of revenues 7,838 8,459
------- -------
Gross Margin 15,289 10,781
------- -------
OPERATING EXPENSES:
Selling, general and administrative 10,982 14,387
Research and development 3,926 4,350
------- -------
TOTAL OPERATING EXPENSES 14,908 18,737
------- -------
Income (loss) from operations 381 (7,956)
Other income (expense) 91 (141)
------- -------
Income (loss) before income taxes 472 (8,097)
Provision for income taxes -- 56
------- -------
NET INCOME (LOSS) $ 472 $(8,153)
======= =======
Net income (loss) per share $ .03 $ (.59)
======= =======
Shares used in computing net income
(loss) per share 17,648 13,760
======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
INTERLEAF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended June 30
1995 1994
(unaudited)
In thousands
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 472 $ (8,153)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization expense 2,017 2,597
Loss from disposal of property and equipment 22 --
Changes in assets and liabilities:
Decrease in accounts receivable, net 4,927 12,338
(Increase) decrease in other assets 198 (344)
Decrease in accounts payable and accrued expenses (1,349) (3,707)
Decrease in unearned revenue (869) (561)
Decrease in other liabilities (1,340) (422)
Other, net (32) (97)
------- -------
Net cash provided by operating activities 4,046 1,651
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (196) (1,197)
Capitalized software development costs (1,066) (1,008)
------- -------
Net cash used in investing activities (1,262) (2,205)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 1,058 1,239
Repayment of long-term debt and capital leases (1,658) (504)
------- -------
Net cash provided by (used in) financing activities (600) 735
------- -------
Effect of exchange-rate changes on cash (1) 102
------- -------
Net increase in cash and cash equivalents 2,183 283
Cash and cash equivalents at beginning of period 10,441 23,364
------- -------
Cash and cash equivalents at end of period $12,624 $23,647
------- -------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
INTERLEAF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The consolidated financial statements include the accounts of
Interleaf, Inc. and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Interleaf, Inc. and its subsidiaries are collectively referred to as
the "Company." Certain 1994 amounts have been reclassified to conform
to the 1995 method of presentation.
The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all financial information and
disclosures required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
these financial statements include all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of
the results of operations for the interim periods reported and of
the financial condition of the Company as of the date of the
interim balance sheet. The results of operations for interim
periods are not necessarily indicative of the results to be
expected for the full year.
These financial statements should be
read in conjunction with the Company's audited consolidated
financial statements and related notes included in the Company's
Annual Report on Form 10-K for the year ended March 31, 1995.
2. Net Income (Loss) Per Share
Per share amounts are calculated using the weighted average
number of common shares and common share equivalents
outstanding during periods of net income. Common share
equivalents are attributable to stock options, common stock
warrants and convertible preferred stock. Per share amounts are
calculated using only the weighted average number of common shares
outstanding during periods of net loss. Fully diluted earnings per
share is not materially different from reported primary earnings
per share.
3. Contingencies
Commencing in the third quarter of fiscal 1994,
PruTech Research and Development Partnership III ("PruTech")
reviewed and audited the joint venture between the
Company and PruTech. PruTech claims that it is entitled to
mandatory cash distributions of 30% of the joint venture's
revenues, that certain joint venture technology is being used by
the Company without compensating the joint venture, and that
research and development expenses incurred by the Company above
PruTech's original investment should not be allocated to the joint
venture. In March 1994, PruTech submitted this dispute to mandatory
arbitration on which no significant proceedings have occurred.
While the dispute has not been resolved, the Company believes that
PruTech's position is without merit and, in any event, believes the
outcome will not have a material adverse effect on the financial
position or results of operations of the Company.
Interleaf's German subsidiary, Interleaf GmbH, has been notified that it is
liable for certain German withholding taxes related to payments
remitted to the United States from Germany. The Company is
appealing this assessment, however, approximately $1.1 million of
the cash and cash equivalents balance at June 30, 1995 has been
reserved for potential payment of the German withholding taxes. The
Company believes the final outcome will not have a material adverse
effect on the financial position or results of operations of the
Company.
6
INTERLEAF, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The Company recorded net income of approximately $472,000 for its first
quarter ended June 30, 1995, compared with a net loss of approximately
$8.2 million for the same period a year ago. The improvement in the Company's
operating results was primarily attributable to a $3.9 million (20%)
increase in total revenues and a $3.8 million (20%) reduction in operating
expenses, due to a significant decline in personnel and facility expenses
arising from the Company's fiscal 1995 restructuring. The Company's fiscal
1995 restructuring reduced worldwide employment by approximately 150 people
and eliminated 19 sales offices.
While revenue increased by 20% from the previous year, future growth in
revenues during the remainder of fiscal 1996 will be largely dependent on
customer acceptance of the Company's product upgrades and new products and
the Company's ability to leverage product license revenues with services to
provide integrated document management solutions to its customers. The majority
of these products are expected to be released beginning in the latter part of
the second quarter through the third quarter of fiscal 1996.
REVENUES
Total revenues increased by approximately $3.9 million (20%) for the first
quarter ended June 30, 1995 compared with the same period a year ago. The
Company experienced revenue growth in each of its geographic regions
(Americas, Europe, Asia Pacific Japan) and product lines (document publishing
and conversion tools, on-line document distribution, document management).
While historically the Company's first quarter revenues are generally
significantly below the previous fiscal year's fourth quarter, the major
decline in its revenues in the first quarter of fiscal 1995 resulted in the
reorganization and restructuring of the Company initiated in September 1995.
It is only in this context that the Company's 20% year-to-year increase in
total revenues can be understood. The Company believes that comparison with
the fourth quarter of fiscal 1995 provides a more meaningful benchmark of
performance. Total revenues for the first quarter ended June 30, 1995
declined only by approximately $0.7 million (3%) from the fourth quarter of
fiscal 1995.
Product license revenues included an approximately $0.9 million increase in
Japan. A majority of the product license revenue in Japan was related to
fixed fee license agreements with system integrators for upfront purchases.
Future growth in Japan depends on the ultimate success of the system
integrators in licensing the Company's products to end-user customers.
Revenue from the Company's on-line document distribution (WorldView) and
document management (RDM) products, which had declined in fiscal 1995,
increased as compared with both the first and fourth quarters of fiscal 1995.
Maintenance revenue, resulting from contracts to provide telephone support
and upgrades to the Company's software products, remained relatively stable
compared with a year ago. The majority of maintenance revenue is derived from
the Company's existing document publishing products and is largely
attributable to renewals from large, long-term customers primarily in the
aerospace/defense industry. Future maintenance revenue will become
increasingly dependent on the Company's ability to maintain its existing
customer maintenance base and to increase maintenance contract volume when
its scheduled product upgrades and new products are released. This will be
necessary to offset the general downward pricing pressure on maintenance in
the software industry.
7
Services revenue, consisting of consulting and customer training revenue,
increased approximately $0.7 million (13%) for the first quarter ended June
30, 1995 compared with the same period a year ago. This was primarily related
to price increases and increased customer demand for the Company's expert
services to implement document management solutions, partially offset by a
small decline in training services.
Revenues from the Company's international operations were approximately 36%
($8.3 million) and 31% ($5.9 million) of total revenues for the three months
ended June 30, 1995 and 1994, respectively. The increase from the prior year
was primarily related to a significant increase in product license revenue in
Japan and Europe, partially offset by a decline in revenue from Canada.
COSTS OF REVENUES
Cost of product revenues includes amortization of capitalized software
development costs; product media, documentation materials, packaging and
shipping costs; and royalties paid for licensed technology. Cost of product
revenues declined approximately $0.5 million (23%) primarily related to
decreased amortization of capitalized software development costs. The decrease
was largely attributable to the write-down of capitalized software
development costs in the fourth quarter of fiscal 1995 associated with older
software products for which revenue projections did not support the
capitalized amounts. Also contributing to the decrease in cost of product
revenues was a decline in royalties associated with certain time-based
royalty agreements, partially offset by increased direct product, packaging
and shipping costs attributable to higher product license revenues. Cost of
maintenance revenues declined 13% primarily due to a decrease in customer
support personnel related to the Company's fiscal 1995 restructuring. Cost of
services revenue remained relatively stable from the prior year.
OPERATING EXPENSES
Selling, general and administrative ("SG&A") expenses decreased
approximately $3.4 million (24%) from last year primarily due to significant
personnel and facilities expense reductions related to the Company's fiscal
1995 restructuring. Further reductions in SG&A expenses from their current
level are not anticipated as the majority of the benefits from the
restructuring have been realized.
Research and development ("R&D") expenses consist primarily of personnel
expenses to support product development offset by capitalized software
development costs. R&D expenses decreased approximately $0.4 million (10%)
from last year primarily due to reduced personnel expenses associated with
the Company's fiscal 1995 restructuring. For the first quarters ended
June 30, 1995 and 1994, R&D expenses were approximately 17% and 23%,
respectively, of total revenues. R&D spending, which excludes the offset for
capitalized software development costs, represented approximately 22% and 28%
of total revenues, respectively. The Company is expecting to ship major
releases of most of its existing products and several new products beginning
in the latter part of the second quarter through the third quarter of fiscal
1996.
LIQUIDITY AND CAPITAL RESOURCES
The company had $12.6 million of cash and cash equivalents at June 30, 1995,
an increase of approximately $2.2 million from March 31, 1995. The increase
was primarily attributable to a decline in the accounts receivable balance,
resulting primarily from strong cash collections, and the Company's net income
for the first quarter ended June 30, 1995. Partially offsetting these
favorable cash flow items were expenditures to liquidate collateralized and
other lease obligations of approximately $1.7 million and restructuring
payments of approximately $0.7 million. Capital expenditures were $0.2
million for the three months ended June 30, 1995, a significant reduction
from the prior fiscal year. Future long-term commitments consist primarily of
operating leases related to both open and closed facilities.
8
The Company anticipates that cash and cash equivalents will decline during
the second quarter due in part to one-time cash requirements. The Company
plans to relocate part of its headquarters operations to smaller and less
expensive facilities near its present location. As part of this move, the
Company will spend approximately $1.0 million for pre-paid rent, leasehold
improvements, broker's fees, and moving costs in the next four months. The
reduction in office space and rental rate and anticipated sub-lease of the
vacated space is expected to result in annual cash and expense savings
slightly in excess of $1.0 million beginning in fiscal 1997. Interleaf's
German subsidiary, Interleaf GmbH, has been notified that it is liable for
German withholding taxes related to payments remitted to the United States
from Germany. The Company is appealing this assessment, however,
approximately $1.1 million of the cash and cash equivalents balance at June
30, 1995 has been reserved for potential payment of the German withholding
taxes. In addition, the Company's strong cash collections during the first
quarter will be difficult to maintain in the second quarter.
Accrued restructuring charges are approximately $2.6 million at June 30,
1995. This reserve should be sufficient to cover remaining expenditures,
primarily attributable to operating lease payments for closed facilities,
which are expected to continue until the year 2000. The Company is
attempting to sub-lease closed facilities to reduce future obligations.
In May 1995, the Company obtained a revolving line of credit from a major
commercial lender. Borrowings from the line of credit are secured by
substantially all domestic assets of the Company. The credit agreement
limits borrowing based upon the level of North American accounts
receivable, modified by the previous quarter's cash collections. As of July
31, 1995, the amount available for borrowings was approximately $5.0
million. The agreement contains certain financial covenants as well as
restrictions on certain additional indebtedness, acquisitions, capital
expenditures, and dividend payments. At June 30, 1995, there were no loans
outstanding under this line of credit.
The Company believes that existing cash and cash equivalents and borrowing
availability, together with cash generated from operations, will provide
sufficient funds to meet the Company's planned operations throughout fiscal
1996. The Company will continue to monitor operating results and its cost
structure.
9
INTERLEAF, INC.
PART II -- OTHER INFORMATION
Item 5. Other Information
On June 6, 1995, the Company accepted the resignation of
Richard P. Delio as Sr. Vice President of Finance
and Administration and Chief Financial Officer. Mark H. Cieplik was
appointed Vice President, Americas on May 9, 1995 and G. Gordon M.
Large was appointed Executive Vice President and Chief Financial
Officer on June 6, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits listed in the accompanying Exhibit Index are
filed as part of this Quarterly Report on Form 10-Q.
(b) No reports were filed on Form 8-K by the Company during the
quarter ended June 30, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERLEAF, INC.
August 11, 1995
/s/ G. Gordon M. Large
--------------------------------------
G. Gordon M. Large
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
10
INTERLEAF, INC.
EXHIBIT INDEX
Exhibit
Number Description Method of Filing
------- ----------- ----------------
10(a) Company's 1983 Stock Option Plan, as amended [vi]
10(a1) 1994 Employee Stock Option Plan [vii]
10(a2) 1993 Incentive Stock Option Plan, as amended [ix]
10(b) Company's 1989 Director Stock Option Plan [i]
10(b2) Company's 1987 Employee Stock Purchase Plan, as amended [vi]
10(c) Company's 1989 Officer and Employee Severance Benefit Plans [i]
10(cc) Company's 1993 Director Stock Option Plan [vi]
10(d) Agreements between PruTech Research and Development [ii]
Partnership III and the Company, dated October 21, 1988.
10(e) Exclusive Marketing and Licensing Agreement, between [i]
Interleaf South America, Ltd. and the Company, and related
Option Agreement, dated March 31, 1989.
10(f) Distribution and License Agreement between Interleaf [i]
Italia, S.r.l. and the Company, and related Joint
Venture Agreement, dated October 31, 1988.
10(g) Preferred Stock Purchase Agreements, for the issuance [ii]
of 2,142,857 shares of the Company's Senior Series B
Convertible Preferred Stock, dated September 29, 1989.
10(h) Notification to Preferred Shareholder of increase in [iii]
conversion ratio, dated May 18, 1992
10(i) Lease of Prospect Place, Waltham, MA, between Prospect [iv]
Place Limited Partnership and Interleaf, Inc., and related
Agreements, dated March 30, 1990.
10(j) Management Consulting Agreement between the Company and [v]
David A. Boucher, the Company's Chairman of the Board,
dated July 15, 1992.
10(k) Letter Agreement between the Company and Richard P. [vi]
Delio, the Company's former Sr. Vice President of Finance
and Administration and Chief Financial Officer, dated
March 30, 1994, concerning his employment and severance
with the Company.
10(l) Letter of Separation and Management Consulting [vii]
Agreement between the Company and Mark K. Ruport, the
Company's former President, Chief Executive Officer and
Director, dated July 25, 1994, concerning his separation
and consulting obligations to the Company.
10(m) Letter Agreement between the Company and Richard P. [vii]
Delio, the Company's former Sr. Vice President of Finance
and Administration and Chief Financial Officer and Acting
President, dated August 3, 1994, concerning his employment
and severance with the Company.
10(n) Letter of Separation and Management Consulting [vii]
Agreement between the Company and Peter Cittadini, the
Company's former Sr. Vice President Worldwide Operations,
dated July 27, 1994, concerning his separation and
consulting obligations to the Company.
10(o) Executive Compensation Arrangement for David A. [vii]
Boucher, the Company's Chairman of the Board, dated
July 20, 1994.
10(p) Letter of Separation and Management Consulting [vii]
Agreement between the Company and Lawrence S. Bohn, the
Company's former Sr. Vice President, Marketing and Business
Development, dated September 20, 1994, concerning his
separation and consulting obligations to the Company.
11
Exhibit
Number Description Method of Filing
------- ----------- ----------------
10(q) Employment and severance agreement between the Company [viii]
and Edward Koepfler, the Company's President, dated
October 3, 1994.
10(r) Loan and Security Agreement between the Company and Included
Foothill Capital Corporation, dated May 2, 1995.
10(s) Employment and severance agreement between the Company Included
and G. Gordon M. Large, the Company's Executive Vice
President and Chief Financial Officer, dated June 5, 1995
11 Computation of Earnings Per Share Included
27 Financial Data Schedule Included
________________________
[i] Incorporated herein by reference is the applicable Exhibit to Company's
Annual Report on Form 10-K for the year ended March 31, 1989,
File Number 0-14713.
[ii] Incorporated herein by reference is the applicable Exhibit to Company's
Annual Report on Form 10-K for the year ended March 31, 1990,
File Number 0-14713.
[iii] Incorporated herein by reference is the applicable Exhibit to Company's
Annual Report on Form 10-K for the year ended March 31, 1992,
File Number 0-14713.
[iv] Incorporated herein by reference is the applicable Exhibit to Company's
Report on Form 8-K filed April 13, 1990, File Number 0-14713.
[v] Incorporated herein by reference is the applicable Exhibit to Company's
Annual Report on Form 10-K for the year ended March 31, 1993,
File Number 0-14713.
[vi] Incorporated herein by reference is the applicable Exhibit to Company's
Annual Report on Form 10-K for the year ended March 31, 1994,
File Number 0-14713.
[vii] Incorporated herein by reference is the applicable Exhibit to Company's
Report on Form 10-Q for the quarter ended September 30, 1994,
File Number 0-14713.
[viii] Incorporated herein by reference is the applicable Exhibit to Company's
Report on Form 10-Q for the quarter ended December 31, 1994,
File Number 0-14713.
[ix] Incorporated herein by reference is the applicable Exhibit to Company's
Annual Report on Form 10-K for the year ended March 31, 1995,
File Number 0-14713.
12
EX-10.(R)
2
EXHIBIT 10(R)
EXHIBIT 10(r)
LOAN AND SECURITY AGREEMENT
by and between
INTERLEAF, INC. and AVALANCHE DEVELOPMENT COMPANY
and
FOOTHILL CAPITAL CORPORATION
Dated as of May 2, 1995
TABLE OF CONTENTS
1. DEFINITIONS AND CONSTRUCTION. 1
1.1 Definitions 1
1.2 Accounting Terms 14
1.3 Code 15
1.4 Construction 15
1.5 Schedules and Exhibits. 15
2. LOAN AND TERMS OF PAYMENT 15
2.1 Revolving Advances. 15
2.2 Letters of Credit and Letter of Credit Guarantees. 16
2.3 Overadvances 18
2.4 Interest: Rates, Payments, and Calculations. 18
2.5 Crediting Payments; Application of Collections. 19
2.6 Statements of Obligations. 20
2.7 Fees. 20
3. CONDITIONS; TERM OF AGREEMENT 21
3.1 Conditions Precedent to Effectiveness of Agreement. 21
3.2 Conditions Precedent to Initial Advance, L/C, or L/C Guaranty. 23
3.3 Conditions Precedent to All Advances, L/Cs, or L/C Guarantees. 24
3.4 Term. 24
3.5 Effect of Termination. 25
3.6 Early Termination by Borrower. 25
3.7 Termination Upon Event of Default. 25
4. CREATION OF SECURITY INTEREST 26
4.1 Grant of Security Interest. 26
4.2 Negotiable Collateral. 26
4.3 Collection of Accounts, General Intangibles,
Negotiable Collateral. 26
4.4 Delivery of Additional Documentation Required. 27
4.5 Power of Attorney. 28
4.6 Right to Inspect. 28
5. REPRESENTATIONS AND WARRANTIES. 28
5.1 No Prior Encumbrances. 28
5.2 Eligible Accounts. 28
5.3 Location of Inventory and Equipment. 29
5.4 Inventory Records. 29
5.5 Location of Chief Executive Office; FEIN. 29
5.6 Due Organization and Qualification; Subsidiaries. 29
5.7 Due Authorization; No Conflict. 30
5.8 Litigation. 30
5.9 No Material Adverse Change in Financial Condition. 30
5.10 Solvency. 30
5.11 Employee Benefits. 30
5.12 Environmental Condition. 31
5.13 Reliance by Foothill; Cumulative. 32
6. AFFIRMATIVE COVENANTS. 32
6.1 Accounting System. 32
6.2 Collateral Reports. 32
6.3 Schedules of Accounts. 33
6.4 Financial Statements, Reports, Certificates. 33
6.5 Tax Returns. 34
6.6 [intentionally omitted] 34
6.7 Designation of Inventory. 34
6.8 Returns. 35
6.9 Title to Equipment. 35
6.10 Maintenance of Equipment. 35
6.11 Taxes. 35
6.12 Insurance. 36
6.13 Financial Covenants. 36
6.14 No Setoffs or Counterclaims. 37
6.15 Location of Inventory and Equipment. 37
6.16 Compliance with Laws. 37
6.17 Employee Benefits. 37
6.18 Leases. 38
7. NEGATIVE COVENANTS. 38
7.1 Indebtedness. 38
7.2 Liens. 39
7.3 Restrictions on Fundamental Changes. 39
7.4 Extraordinary Transactions and Disposal of Assets. 40
7.5 Change Name. 40
7.6 Guarantee. 40
7.7 Restructure. 40
7.8 Prepayments. 40
7.9 Change of Control. 40
7.10 Capital Expenditures. 40
7.11 Consignments. 41
7.12 Distributions. 41
7.13 Accounting Methods. 41
7.14 Investments. 41
7.15 Transactions with Affiliates. 42
ii
7.16 Suspension. 42
7.17 [intentionally omitted]. 42
7.18 Use of Proceeds. 42
7.19 Change in Location of Chief Executive Office; Inventory
and Equipment with Bailees. 42
8. EVENTS OF DEFAULT. 43
9. FOOTHILL'S RIGHTS AND REMEDIES. 45
9.1 Rights and Remedies. 45
9.2 Remedies Cumulative. 47
10. TAXES AND EXPENSES 48
11. WAIVERS; INDEMNIFICATION 48
11.1 Demand; Protest; etc. 48
11.2 Foothill's Liability for Collateral. 48
11.3 Indemnification. 49
11.4 Suretyship Waivers and Consents. 49
12. NOTICES 52
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. 54
14. DESTRUCTION OF BORROWER'S DOCUMENTS 54
15. GENERAL PROVISIONS 55
15.1 Effectiveness. 55
15.2 Successors and Assigns. 55
15.3 Section Headings. 55
15.4 Interpretation. 55
15.5 Severability of Provisions. 55
15.6 Amendments in Writing. 55
15.7 Counterparts; Telefacsimile Execution. 55
15.8 Revival and Reinstatement of Obligations. 56
15.9 Integration. 56
SCHEDULES
Schedule P-1 Permitted Liens
Schedule 5.6 Non-Debtor Subsidiaries
Schedule 5.8 Litigation
iii
Schedule 6.15 Location of Inventory and Equipment
EXHIBITS
Exhibit C-1 Canadian Security Agreement
Exhibit C-2 Copyright Security Agreement
Exhibits G-1 through G-3 Guaranties
Exhibit P-1 Patent Security Agreement
Exhibit S-1 Source Code Escrow Agreement
Exhibit S-2 Stock Pledge Agreement
Exhibit T-1 Trademark Security Agreement
Exhibits U-1 through U-2UCC Security Agreements
iv
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT, is entered into as of May 2, 1995, between
FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), with a
place of business located at 11111 Santa Monica Boulevard, Suite 1500, Los
Angeles, California 90025-3333, on the one hand, and INTERLEAF, INC., a
Massachusetts corporation ("Interleaf), with its chief executive office located
at Prospect Place, 9 Hillside Avenue, Waltham, Massachusetts 02154, and
AVALANCHE DEVELOPMENT COMPANY, a Colorado corporation ("Avalanche"), with its
chief executive office located at 4999 Pearl East Circle, Suite 100, Boulder,
Colorado 80301, on the other hand.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the
following definitions:
"ACCOUNT DEBTOR" means any Person who is or who may become obligated under,
with respect to, or on account of an Account.
"ACCOUNTS" means all currently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to a Debtor or
Canadian Guarantor arising out of the sale, license, or lease of goods or the
rendition of services by such Debtor or Canadian Guarantor, irrespective of
whether earned by performance, and any and all credit insurance, guaranties, or
security therefor.
"AFFILIATE" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. For purposes of this definition, "control" as applied to any Person
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether through the
ownership of voting securities, by contract, or otherwise.
"AGREEMENT" means this Loan and Security Agreement and any extensions, riders,
supplements, notes, amendments, or modifications to or in connection with this
Loan and Security Agreement.
"AUTHORIZED OFFICER" means any officer of any Debtor.
"AVAILABILITY" means, as of the date of determination, the result (so long as
such result is a positive number) of (a) the lesser of the Borrowing Base or the
Maximum Amount, minus (b) the outstanding Obligations that arise under SECTIONS
2.1 and 2.2 hereof.
v
"AVALANCHE" has the meaning set forth in the preamble to this Agreement.
"AVERAGE UNUSED PORTION OF MAXIMUM AMOUNT" means (a) the Maximum Amount; LESS
(b) the sum of: (i) the average Daily Balance of advances made by Foothill
under SECTION 2.1 that were outstanding during the immediately preceding
month, PLUS (ii) the average Daily Balance of the undrawn L/Cs and L/C
Guarantees issued by Foothill under SECTION 2.2 that were outstanding during
the immediately preceding month.
"BANKRUPTCY CODE" means (a) the United States Bankruptcy Code (11 U.S.C.
ET SEQ.), as amended, and any successor statute, and (b) the Bankruptcy and
Insolvency Act (Canada), as amended, and any successor statute.
"BORROWER" means Avalanche and Interleaf, individually and collectively,
jointly and severally.
"BORROWER'S BOOKS" means all of Borrower's books and records including:
ledgers; records indicating, summarizing, or evidencing Borrower's properties or
assets (including the Collateral) or liabilities; all information relating to
Borrower's business operations or financial condition; and all computer
programs, disc or tape files, printouts, runs, or other computer prepared
information in respect of such books and records.
"BORROWING BASE" has the meaning set forth in SECTION 2.1(a). For purposes
of this definition, any amount that is denominated in a currency other than
Dollars shall be valued in Dollars based on the applicable Exchange Rate for
such currency as of the date one Business Day prior to the date of
determination.
"BUSINESS DAY" means any day that is not a Saturday, Sunday, or other day on
which national banks are authorized or required to close.
"CANADIAN COLLATERAL" means the personal property collateral in which liens
and security interests held by Foothill have been granted pursuant to the Loan
Documents to which Canadian Guarantor is party.
"CANADIAN GAAP" means generally accepted accounting principles as in effect
from time to time in Canada, consistently applied.
"CANADIAN GUARANTOR" means Interleaf Canada Inc., a corporation incorporated
under the laws of the Province of Ontario.
"CANADIAN MARITIME PROVINCES" means Prince Edward Island, New Brunswick, Nova
Scotia, and Newfoundland.
"CANADIAN SECURITY AGREEMENT" means that certain General Security Agreement,
dated as of even date herewith, by Canadian Guarantor in favor of Foothill, in
the form of EXHIBIT C-1 attached hereto.
vi
"CHANGE OF CONTROL" shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly,
of more than 20% of the total voting power of all classes of stock then
outstanding of Borrower normally entitled to vote in the election of directors.
"CLOSING DATE" means the date of the initial advance hereunder or the date of
the initial issuance of an L/C or an L/C Guaranty hereunder or the first date by
which each of the conditions set forth in SECTION 3.2 shall have been
fulfilled (or else shall have been waived), whichever occurs first.
"CODE" means the California Uniform Commercial Code.
"COLLATERAL" means each of the following: the Accounts of Borrower; Borrower's
Books; the Equipment; the General Intangibles; the Inventory; the Negotiable
Collateral; any money, or other assets of Borrower which now or hereafter come
into the possession, custody, or control of Foothill; and the proceeds and
products, whether tangible or intangible, of any of the foregoing including
proceeds of insurance covering any or all of the Collateral, and any and all
Accounts of Borrower, Borrower's Books, Equipment, General Intangibles,
Inventory, Negotiable Collateral, money, deposit accounts, or other tangible or
intangible property resulting from the sale, exchange, collection, or other
disposition of any of the foregoing, or any portion thereof or interest therein,
and the proceeds thereof.
"COMPLIANCE DATE" has the meaning set forth in SECTION 6.4.
"CONSOLIDATED CURRENT ASSETS" means, as of any date of determination, the
aggregate amount of all current assets of Interleaf and its subsidiaries
calculated on a consolidated basis that would, in accordance with GAAP, be
classified on a balance sheet as current assets.
"CONSOLIDATED CURRENT LIABILITIES" means, as of any date of determination, the
aggregate amount of all current liabilities of Interleaf and its subsidiaries,
calculated on a consolidated basis that would, in accordance with GAAP, be
classified on a balance sheet as current liabilities. For purposes of this
definition, all advances outstanding under this Agreement shall be deemed to be
current liabilities without regard to whether they would be deemed to be so
under GAAP.
"COPYRIGHT SECURITY AGREEMENT" means a Copyright Security Agreement, in the
form of EXHIBIT C-2 attached hereto, dated as of even date herewith, between
the Obligors and Foothill.
"DAILY BALANCE" means the amount of an Obligation owed at the end of a given
day.
"DEBTOR" means any one of Interleaf or Avalanche.
"DESIGNATED WRITE-DOWN" means the write-down by Interleaf in its financial
statements for the fiscal year ended March 31, 1995 of up to Twenty Million
Dollars ($20,000,000) in "good will" and capitalized research and development.
vii
"DOLLARS" and "$" mean and refer to United States dollars or such coin or
currency of the United States as at the time of payment shall be legal tender
for payment of public and private debts in the United States.
"EARLY TERMINATION PREMIUM" has the meaning set forth in SECTION 3.6.
"EFFECTIVE DATE" means the later to occur of (a) the date on which this
Agreement is executed and delivered by Borrower and Foothill, or (b) the first
date when each of the conditions set forth in SECTION 3.1 shall have been
fulfilled or waived.
"ELIGIBLE ACCOUNTS" means Eligible Domestic Accounts and Eligible Foreign
Accounts.
"ELIGIBLE DOMESTIC ACCOUNTS" means those Accounts created by the Debtors in
the ordinary course of business that arise out of the sale or license of goods
or rendition of services, and that strictly comply with all of Borrower's
representations and warranties to Foothill; PROVIDED, HOWEVER, that
standards of eligibility may be fixed and revised from time to time by Foothill
in Foothill's reasonable credit judgment upon the occurrence of any event, or if
Foothill becomes aware of any fact or circumstance, either of which Foothill
determines to have a material adverse effect on: (1) the business of Borrower or
Canadian Guarantor; (2) the value of the Collateral or the Canadian Collateral;
(3) the prospect of timely repayment of the Obligations; or (4) Foothill's
ability to realize upon the Collateral or the Canadian Collateral. Eligible
Domestic Accounts shall be net of the Reserves and shall not include the
following:
(a) Accounts that the Account Debtor has failed to pay within ninety (90) days
of invoice date, Accounts with selling terms of more than forty-five (45) days,
and all Accounts owed by an Account Debtor that has failed to pay fifty percent
(50%) or more of its Accounts owed to Borrower within ninety (90) days of
invoice date;
(b) Accounts with respect to which the Account Debtor is an officer, employee,
Affiliate, or agent of Borrower;
(c) Accounts with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, bill and hold, or other terms by reason
of which the payment by the Account Debtor may be conditional;
(d) Accounts with respect to which the Account Debtor is not a resident of the
United States, and which are not either (i) covered by credit insurance in form
and amount, and by an insurer, satisfactory to Foothill, or (ii) supported by
one or more letters of credit that are assignable by their terms and have been
delivered to Foothill in an amount, of a tenor, and issued by a financial
institution, acceptable to Foothill;
(e) Accounts with respect to which the Account Debtor is the United States, to
the extent that the federal Assignment of Claims Act shall not have been
complied with in respect of such Accounts;
viii
(f) Accounts with respect to which Borrower is or may become liable to the
Account Debtor for goods sold or licensed or services rendered by the Account
Debtor to Borrower;
(g) Accounts with respect to an Account Debtor whose total obligations owing to
Borrower and Canadian Guarantor exceed ten percent (10%) of all Eligible
Accounts, to the extent of the obligations owing by such Account Debtor in
excess of such percentage;
(h) Accounts with respect to which the Account Debtor disputes liability or
makes any claim with respect thereto, or is subject to any Insolvency
Proceeding, or becomes insolvent, or goes out of business;
(i) Accounts the collection of which Foothill, in its reasonable credit
judgment, believes to be doubtful by reason of the Account Debtor's financial
condition;
(j) Accounts that are payable in other than Dollars; and
(k) Accounts (other than Maintenance Accounts) that represent deposits, progress
payments or other advance billings that are due prior to the completion of
performance by Borrower of the subject contract for goods or services.
"ELIGIBLE FOREIGN ACCOUNTS" means those Accounts that do not qualify as
Eligible Domestic Accounts solely because (a) they are created by Canadian
Guarantor instead of Borrower, (b) the Account Debtor is a resident of Canada
(but exclusive of the Canadian Maritime Provinces), or (c) the payments
thereunder are payable in Canadian dollars instead of Dollars.
"EQUIPMENT" means all of each Debtor's present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
vehicles (including motor vehicles and trailers), tools, parts, dies, jigs,
goods (other than consumer goods, farm products, or Inventory), wherever
located, and any interest of any Debtor in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located.
"ERISA" means (a) the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any predecessor, successor, or superseding laws of
the United States, together with all regulations promulgated thereunder, and (b)
comparable provisions of Canadian law relative to the establishment and
regulation of pension and other employee benefit plans.
"ERISA AFFILIATE" means any trade or business (irrespective of whether
incorporated) which, within the meaning of Section 414 of the IRC, is: (i)
under common control with Borrower; (ii) treated, together with Borrower, as a
single employer; (iii) treated as a member of an affiliated service group of
which Borrower is also treated as a member; or (iv) is otherwise aggregated with
the Borrower for purposes of the employee benefits requirements listed in IRC
Section 414(m)(4).
ix
"ERISA EVENT" means any one or more of the following: (i) a Reportable Event
with respect to a Qualified Plan or a Multiemployer Plan; (ii) a Prohibited
Transaction with respect to any Plan; (iii) a complete or partial withdrawal by
Borrower or any ERISA Affiliate from a Multiemployer Plan; (iv) the complete or
partial withdrawal of Borrower or an ERISA Affiliate from a Qualified Plan
during a plan year in which it was, or was treated as, a "substantial employer"
as defined in ERISA; (v) a failure to make full payment when due of all amounts
which, under the provisions of any Plan or applicable law, Borrower or any ERISA
Affiliate is required to make; (vi) the filing of a notice of intent to
terminate, or the treatment of a plan amendment as a termination, under ERISA;
(vii) an event or condition which might reasonably be expected to constitute
grounds under ERISA for the termination of, or the appointment of a trustee
to administer, any Qualified Plan or Multiemployer Plan; (viii) the imposition
of any liability under ERISA, other than PBGC premiums due but not delinquent
under ERISA, upon Borrower or any ERISA Affiliate; and (ix) a violation of
the applicable requirements of ERISA, or the exclusive benefit rule under
ERISA, by any fiduciary or disqualified person with respect to any Plan for
which Borrower or any ERISA Affiliate may be directly or indirectly liable.
"EVENT OF DEFAULT" has the meaning set forth in SECTION 8.
"EXCHANGE RATE" means and refers to the nominal rate of exchange available to
Foothill in a chosen foreign exchange market for the purchase of non-Dollar
currency by Foothill at 12:00 noon, local time, one Business Day prior to any
date of determination, expressed as the number of units of such currency per one
(1) Dollar.
"FEIN" means Federal Employer Identification Number.
"FOOTHILL" has the meaning set forth in the preamble to this Agreement.
"FOOTHILL EXPENSES" means all: costs or expenses (including taxes,
photocopying, notarization, telecommunication and insurance premiums) required
to be paid by Borrower or Guarantor under any of the Loan Documents that are
paid or advanced by Foothill; fees in respect of documentation, filing,
recording, publication, and searches, and reasonable fees in respect of
appraisals (including periodic Collateral, Canadian Collateral, or Other
Guarantor Collateral appraisals), real estate surveys, and environmental audits,
that are assessed, paid, or incurred by Foothill in connection with Foothill's
transactions with Borrower or Guarantor; reasonable costs and expenses incurred
by Foothill in the disbursement of funds to Borrower (by wire transfer or
otherwise); reasonable charges paid or incurred by Foothill resulting from the
dishonor of checks; reasonable costs and expenses paid or incurred by Foothill
to correct any default or enforce any provision of the Loan Documents, or in
gaining possession of, maintaining, handling, preserving, storing, shipping,
selling, preparing for sale, or advertising to sell the Collateral, Canadian
Collateral, or Other Guarantor Collateral, or any portion thereof, irrespective
of whether a sale is consummated; reasonable costs and expenses paid or incurred
by Foothill in examining Borrower's Books or Guarantor's Books (as that term is
defined in the Security Agreements); costs and expenses of third party claims or
any other suit paid or incurred by Foothill in enforcing or defending the Loan
Documents; and Foothill's reasonable attorneys fees and expenses incurred in
advising, structuring, drafting, reviewing, administering, amending,
terminating, enforcing (including attorneys fees and
x
expenses incurred in connection with a "workout," a "restructuring," or an
Insolvency Proceeding concerning Borrower or any guarantor of the Obligations),
defending, or concerning the Loan Documents, irrespective of whether suit is
brought.
"GAAP" means generally accepted accounting principles as in effect from time
to time in the United States, consistently applied.
"GENERAL INTANGIBLES" means all of Borrower's present and future general
intangibles and other personal property (including contract rights, rights
arising under common law, statutes, or regulations, choses or things in action,
goodwill, patents, trade names, trademarks, servicemarks, copyrights, source
code, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, infringements, claims, computer
programs, computer discs, computer tapes, literature, reports, catalogs, deposit
accounts, insurance premium rebates, tax refunds, and tax refund claims), other
than goods, Accounts, and Negotiable Collateral.
"GUARANTOR" means Canadian Guarantor and the Other Guarantor, individually and
collectively, jointly and severally.
"GUARANTIES" means those certain General Continuing Guaranties, each dated as
of even date herewith, by the respective Guarantors in favor of Foothill and in
the form of EXHIBITS G-1 AND G-2, RESPECTIVELY.
"HAZARDOUS MATERIALS" means all or any of the following: (a) substances that
are defined or listed in, or otherwise classified pursuant to, any applicable
laws or regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity"; (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources; (c) any flammable substances or explosives
or any radioactive materials; and (d) asbestos in any form or electrical
equipment which contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty (50) parts per million.
"IL/SECURITIES" means Interleaf Securities Corporation, a Massachusetts
corporation.
"INDEBTEDNESS" means: (a) all obligations of any Debtor for borrowed money;
(b) all obligations of any Debtor evidenced by bonds, debentures, notes, or
other similar instruments and all reimbursement or other obligations of any
Debtor in respect of letters of credit, letter of credit guaranties, bankers
acceptances, interest rate swaps, controlled disbursement accounts, or other
financial products; (c) all obligations of any Debtor under capital leases; (d)
all obligations or liabilities of others secured by a lien or security interest
on any property or asset of any Debtor, irrespective of whether such obligation
xi
or liability is assumed; and (e) any obligation of any Debtor guaranteeing or
intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or
sold with recourse to such Debtor) any indebtedness, lease, dividend, letter of
credit, or other obligation of any other Person.
"INSOLVENCY PROCEEDING" means any proceeding commenced by or against any
Person under any provision of the Bankruptcy Code or under any other bankruptcy
or insolvency law, including assignments for the benefit of creditors,
formal or informal moratoria, compositions, extensions generally with its
creditors, or proceedings seeking reorganization, arrangement, or other similar
relief.
"INTERLEAF" has the meaning set forth in the preamble to this Agreement.
"INVENTORY" means all present and future inventory in which any Debtor has any
interest, including goods held for sale, license, or lease or to be furnished
under a contract of service and all of each Debtor's present and future raw
materials, work in process, finished goods, and packing and shipping materials,
wherever located, and any documents of title representing any of the above.
"IRC" means the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
"L/C" has the meaning set forth in SECTION 2.2(a).
"L/C GUARANTY" has the meaning set forth in SECTION 2.2(a).
"LOAN DOCUMENTS" means this Agreement, the Lockbox Agreements, the Guaranties,
the Security Agreements, the Copyright Security Agreement, the Patent Security
Agreement, the Source Code Escrow Agreement, the Stock Pledge Agreement, the
Trademark Security Agreement, any note or notes executed by Borrower and payable
to Foothill, and any other agreement entered into, now or in the future, in
connection with this Agreement.
"LOCKBOX ACCOUNT" shall mean the depositary account established pursuant to
the respective Lockbox Agreement.
"LOCKBOX AGREEMENTS" means those certain Lockbox Operating Procedural
Agreements and those certain Depository Account Agreements, in form and
substance satisfactory to Foothill, each of which is among a Debtor or Canadian
Guarantor, as applicable, Foothill, and one of the Lockbox Banks.
"LOCKBOX BANKS" means The First National Bank of Boston (in respect of the
Debtors) and The Royal Dominion Bank of Canada (in respect of Canadian
Guarantor).
"MAINTENANCE ACCOUNTS" means Accounts of Borrower and Canadian Guarantor
pertaining to maintenance services.
"MAXIMUM AMOUNT" has the meaning set forth in SECTION 2.1.
xii
"MULTIEMPLOYER PLAN" means a multiemployer Plan in which employees of
Borrower, Canadian Guarantor, or any ERISA Affiliate participate or to which
Borrower, Canadian Guarantor, or any ERISA Affiliate contribute or are required
to contribute.
"NEGOTIABLE COLLATERAL" means all of each Debtor's present and future letters
of credit, notes, drafts, instruments, certificated and uncertificated
securities (including the shares of stock of all Obligors other than Interleaf),
documents, personal property leases (wherein a Debtor is the lessor), chattel
paper, and Borrower's Books relating to any of the foregoing.
"OBLIGATIONS" means all loans, advances, debts, principal, interest (including
any interest that, but for the provisions of the Bankruptcy Code, would have
accrued), contingent reimbursement obligations owing to Foothill under any
outstanding L/Cs or L/C Guarantees, premiums (including Early Termination
Premiums), liabilities (including all amounts charged to Borrower's loan account
pursuant to any agreement authorizing Foothill to charge Borrower's loan
account), obligations, fees, lease payments, guaranties, covenants, and duties
owing by any Debtor or any Guarantor to Foothill of any kind and description
(whether pursuant to or evidenced by the Loan Documents, by any note or other
instrument, or pursuant to any other agreement between Foothill and Borrower,
and irrespective of whether for the payment of money), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability, or obligation owing from
Borrower to others that Foothill may have obtained by assignment or otherwise,
and further including all interest not paid when due and all Foothill Expenses
that any Debtor or any Guarantor is required to pay or reimburse by the Loan
Documents, by law, or otherwise.
"OBLIGOR" means any one of Interleaf, Avalanche, Canadian Guarantor, and
IL/Securities.
"OTHER GUARANTOR" means IL/Securities or any other Subsidiary of Interleaf
that becomes, after the Effective Date, a guarantor of the Obligations.
"OTHER GUARANTOR COLLATERAL" means the personal property collateral in which
liens and security interests held by Foothill have been granted pursuant to the
Loan Documents to which any Other Guarantor is party.
"OVERADVANCE" has the meaning set forth in SECTION 2.3.
"PATENT SECURITY AGREEMENT" means a Patent Security Agreement, in the form of
EXHIBIT P-1 attached hereto, dated as of even date herewith, between the
Obligors and Foothill.
"PBGC" means (a) the Pension Benefit Guaranty Corporation as defined in Title
IV of ERISA, or any successor thereto, and (b) any entity created under the laws
of Canada or any of the provinces or territories thereof having comparable
rights and responsibilities.
"PERMITTED LIENS" means: (a) liens and security interests held by Foothill;
(b) liens for unpaid taxes that are not yet due and payable; (c) liens and
security interests set forth on SCHEDULE P-1 attached
xiii
hereto; (d) purchase money security interests and liens of lessors under
capital leases to the extent that the acquisition or lease of the underlying
asset was permitted under SECTION 7.10, and so long as the security interest
or lien only secures the purchase price of the asset; (e) easements, rights
of way, reservations, covenants, conditions, restrictions, zoning variances,
and other similar encumbrances that do not materially interfere with the use
or value of the property subject thereto; (f) obligations and duties as lessee
under any lease existing on the date of this Agreement; and (g) mechanics',
materialmen's, warehousemen's, or similar liens that arise by operation of law.
"PERMITTED PROTEST" means the right of any Obligor to protest any lien, tax,
rental payment, or other charge, other than any such lien or charge that secures
the Obligations, provided (i) a reserve with respect to such obligation is
established on the books of such Obligor in an amount that is reasonably
satisfactory to Foothill, (ii) any such protest is instituted and diligently
prosecuted by such Obligor in good faith, and (iii) Foothill is satisfied that,
while any such protest is pending, there will be no impairment of the
enforceability, validity, or priority of any of the liens or security interests
of Foothill in and to the property or assets of such Obligor.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint ventures, trusts, land trusts,
business trusts, or other organizations, irrespective of whether they are legal
entities, and governments and agencies and political subdivisions thereof.
"PLAN" means an employee benefit plan (as defined in Section 3(3) of ERISA)
which Borrower or any ERISA Affiliate sponsors or maintains or to which Borrower
or any ERISA Affiliate makes, is making, or is obligated to make contributions,
including any Multiemployer Plan or Qualified Plan.
"PROHIBITED TRANSACTION" means (a) any transaction described in Section 406 of
United States ERISA which is not exempt by reason of Section 408 of United
States ERISA, and any transaction described in Section 4975(c) or (d) of the IRC
that is not exempt by reason of Section 4975(c) of the IRC, and (b) any
comparable transaction under Canadian law.
"QUALIFIED PLAN" means a pension Plan intended to be tax-qualified under
Section 401(a) of the IRC (or comparable provisions of Canadian law) that
Borrower, Canadian Guarantor, or any ERISA Affiliate sponsors, maintains, or to
which any such person makes, is making, or is obligated to make, contributions,
or, in the case of a multiple-employer Plan, has made contributions at any time
during the immediately preceding period covering at least five (5) plan years,
but excluding any Multiemployer Plan.
"REFERENCE RATE" means the highest of the variable rates of interest, per
annum, most recently announced by (a) Bank of America, N.T. & S.A., (b) Mellon
Bank, N.A., and (c) Citibank, N.A., or any successor to any of the foregoing
institutions, as its "prime rate" or "reference rate," as the case may be,
irrespective of whether such announced rate is the best rate available from such
financial institution.
xiv
"RENEWAL DATE" has the meaning set forth in SECTION 3.4.
"REPORTABLE EVENT" means any event described in Section 4043 (other than
Subsections (b)(7) and (b)(9)) of United States ERISA and any comparable event
described in comparable provisions of Canadian ERISA.
"RESERVES" means (a) a reserve against the Borrowing Base equal to twenty-five
percent (25%) of billed and uncollected Maintenance Accounts of Borrower and
Canadian Guarantor; and (b) a reserve against the Borrowing Base equal to
twenty-five percent (25%) of collected but unearned revenues of Borrower and
Canadian Guarantor relating to maintenance services. To the extent that the
Reserves are maintained against the Borrowing Base, otherwise Eligible Accounts
consisting of Maintenance Accounts shall not be deemed ineligible solely because
they have not yet been earned by performance or because they are potentially
subject to off-sets based on possible future non-performance of prepaid
maintenance services. Foothill may adjust from time to time the reserve
percentage set forth in item (a) or item (b) of this definition upon the
occurrence of any event, or if Foothill becomes aware of any fact or
circumstance, either of which Foothill determines to have a material adverse
effect on: (1) the business of Borrower or Canadian Guarantor; (2) the value of
the Collateral or the Canadian Collateral; (3) the prospect of timely repayment
of the Obligations; or (4) Foothill's ability to realize upon the Collateral or
the Canadian Collateral.
"SECURITY AGREEMENTS" means the UCC Security Agreements and the Canadian
Security Agreement.
"SOLVENT" means, with respect to any Person on a particular date, that on such
date (a) at fair valuations, all of the properties and assets of such Person are
greater than the sum of the debts, including contingent liabilities, of such
Person, (b) the present fair salable value of the properties and assets of such
Person is not less than the amount that will be required to pay the probable
liability of such Person on its debts as they become absolute and matured, (c)
such Person is able to realize upon its properties and assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (d) such Person does not intend to, and
does not believe that it will, incur debts beyond such Person's ability to pay
as such debts mature, and (e) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's properties and assets would constitute unreasonably small capital
after giving due consideration to the prevailing practices in the industry in
which such Person is engaged. In computing the amount of contingent liabilities
at any time, it is intended that such liabilities will be computed at the amount
that, in light of all the facts and circumstances existing at such time,
represents the amount that reasonably can be expected to become an actual or
matured liability.
"SOURCE CODE ESCROW AGREEMENT" means a Source Code Escrow Agreement, in the
form of EXHIBIT S-1 attached hereto, among Data Securities International,
Inc., Borrower, and Foothill.
"SUBSIDIARY" means any corporation, association, partnership, joint venture,
or other business entity of which Interleaf, directly or indirectly, either (i)
with respect to a corporation, owns or controls fifty
xv
percent (50%) or more of the voting power and has the ability to elect at
least a majority of the board of directors or similar managing body,
irrespective of whether a class or classes shall or might have voting power
by reason of the happening of any contingency, or (ii) with respect to an
association, partnership, joint venture or other business entity, is entitled
to share in fifty percent (50%) or more of the profits and losses, however
determined, and has voting control with respect thereto.
"STOCK PLEDGE AGREEMENT" means a Security Agreement - Stock Pledge, in the
form of EXHIBIT S-2 attached hereto, dated as of even date herewith, between
Interleaf and Foothill.
"TANGIBLE NET WORTH" means, as of the date any determination thereof is to be
made, the difference of: (a) Interleaf's total stockholder's equity; minus (b)
the sum of: (i) all intangible assets of Interleaf; (ii) all of Interleaf's
prepaid expenses; and (iii) all amounts due to Interleaf from Affiliates; in
each case, calculated on a consolidated basis.
"TRADEMARK SECURITY AGREEMENT" means a Trademark Security Agreement, in the
form of EXHIBIT T-1 attached hereto, dated as of even date herewith, between
the Obligors and Foothill.
"UCC SECURITY AGREEMENTS" means those certain Security Agreements, each dated
as of even date herewith, by the respective Guarantors in favor of Foothill and
in the form of EXHIBITS U-1 AND U-2, RESPECTIVELY.
"UNFUNDED BENEFIT LIABILITY" means the excess of a Plan's benefit liabilities
over the current value of such Plan's assets, determined in accordance with the
assumptions used by the Plan's actuaries for funding the Plan for the applicable
plan year.
"UNITED STATES" means the United States of America, its territories and
possessions and the Commonwealth of Puerto Rico, or any department, agency, or
instrumentality of the foregoing.
"VOIDABLE TRANSFER" has the meaning set forth in SECTION 15.8.
"WORKING CAPITAL" means the result of subtracting Consolidated Current
Liabilities from Consolidated Current Assets.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Interleaf" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Interleaf on a consolidated basis
unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in the Code shall
be construed and defined as set forth in the Code unless otherwise defined
herein.
xvi
1.4 CONSTRUCTION. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular, references to the
singular include the plural, the term "including" is not limiting, and the term
"or" has, except where otherwise indicated, the inclusive meaning represented by
the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. Section, subsection, clause,
schedule, and exhibit references are to this Agreement unless otherwise
specified. Any reference in this Agreement or in the Loan Documents to this
Agreement or any of the Loan Documents shall include all alterations,
amendments, changes, extensions, modifications, renewals, replacements,
substitutions, and supplements, thereto and thereof, as applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits attached to this
Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES. (a) Subject to the terms and conditions of this
Agreement, Foothill agrees to make revolving advances to Borrower in an amount
at any one time outstanding not to exceed the Borrowing Base less the undrawn or
unreimbursed amount of L/Cs and L/C Guarantees outstanding hereunder.
For purposes of this Agreement, "Borrowing Base", as of any date of
determination, shall mean an amount equal to the lesser of: (y) (i) eighty
percent (80%) of the amount of Eligible Domestic Accounts, PLUS (ii) so long
as the meachanisms contemplated by the Lockbox Agreement among the applicable
Lockbox Bank, Foothill, and Canadian Guarantor is in full force and effect,
eighty percent (80%) of the amount of Eligible Foreign Accounts; or (z) an
amount equal to one-third (1/3) of Borrower's and Canadian Guarantor's
collections for the immediately preceding ninety (90) day period.
(b)Anything to the contrary in SECTION 2.1(a) above notwithstanding, Foothill
may reduce its advance rates based upon Eligible Accounts without declaring an
Event of Default if it determines, in its reasonable discretion, that there is a
material impairment of the prospect of repayment of all or any portion of the
Obligations or a material impairment of the value or priority of Foothill's
security interests in the Collateral or the Canadian Collateral.
(c)Foothill shall have no obligation to make advances hereunder to the extent
they would cause the outstanding Obligations to exceed Ten Million Dollars
($10,000,000) ("Maximum Amount").
(d)Foothill is authorized to make advances under this Agreement based only upon
written instructions received, at least fifteen (15) Business Days in advance of
the requested date of advance, from anyone purporting to be an Authorized
Officer of Borrower, or without instructions if pursuant to SECTION 2.4(d).
Borrower agrees to establish and maintain a single designated deposit account
for the purpose of receiving the proceeds of the advances requested by Borrower
and made by Foothill hereunder. Unless otherwise agreed by Foothill and
Borrower, any advance requested by Borrower and made by
xvii
Foothill hereunder shall be made to such designated deposit account. Amounts
borrowed pursuant to this SECTION 2.1 may be repaid and, subject to the terms
and conditions of this Agreement, reborrowed at any time during the term of
this Agreement.
2.2 LETTERS OF CREDIT AND LETTER OF CREDIT GUARANTEES.
(a)Subject to the terms and conditions of this Agreement, Foothill agrees, upon
at least fifteen (15) Business Days prior written notice from Borrower of the
proposed date of issuance, to issue commercial or standby letters of credit for
the account of Borrower (each, an "L/C") or to issue standby letters of credit
or guarantees of payment (each such letter of credit or guaranty, an "L/C
Guaranty") with respect to commercial or standby letters of credit issued by
another Person for the account of Borrower in an aggregate face amount not to
exceed the lesser of: (i) the Borrowing Base less the amount of advances
outstanding pursuant to SECTION 2.1; or (ii) Two Million Dollars ($2,000,000).
Borrower expressly understands and agrees that Foothill shall have no
obligation to arrange for the issuance by other financial institutions of
letters of credit that are to be the subject of L/C Guarantees. Borrower
and Foothill acknowledge and agree that certain of the letters of credit
that are to be the subject of L/C Guarantees may be outstanding on the
Closing Date. Each L/C and each letter of credit that is the subject of
an L/C Guaranty shall have an expiry date no later than sixty (60) days
prior to the date on which this Agreement is scheduled to terminate under
SECTION 3.4 (without regard to any potential renewal term) and all such
L/Cs and letters of credit (and the applicable L/C Guarantees) shall be in
form and substance acceptable to Foothill in its sole discretion. Foothill
shall not have any obligation to issue L/Cs or L/C Guarantees to the extent
that the face amount of all outstanding L/Cs and L/C Guarantees, plus the
amount of advances outstanding pursuant to SECTION 2.1, would exceed the
Maximum Amount. The L/Cs and the L/C Guarantees issued under this
SECTION 2.2 shall be used by Borrower, consistent with this Agreement, for
its general corporate purposes. If Foothill is obligated to advance funds
under an L/C or L/C Guaranty, the amount so advanced immediately shall be
deemed to be an advance made by Foothill to Borrower pursuant to
SECTION 2.1 and, tereafter, shall bear interest at the rates then applicable
under SECTION 2.4.
(b) Borrower hereby agrees to indemnify, save, defend, and hold Foothill
harmless from any loss, cost, expense, or liability, including payments made
by Foothill, expenses, and reasonable attorneys fees incurred by Foothill
arising out of or in connection with any L/Cs or L/C Guarantees. Borrower
agrees to be bound by the issuing bank's regulations and interpretations of
any letters of credit guarantied by Foothill and opened to or for Borrower's
account or by Foothill's interpretations of any L/C issued by Foothill to or
for Borrower's account, even though this interpretation may be different from
Borrower's own, and Borrower understands and agrees that Foothill shall not be
liable for any error, negligence, or mistakes, whether of omission or
commission, in following Borrower's instructions or those contained in the
L/Cs or any modifications, amendments, or supplements thereto. Borrower
understands that the L/C Guarantees may require Foothill to indemnify the
issuing bank for certain costs or liabilities arising out of claims by
Borrower against such issuing bank. Borrower hereby agrees to indemnify,
save, defend, and hold Foothill harmless with respect to any loss, cost,
expense (including attorneys fees), or liability incurred by Foothill under
any L/C Guaranty as a result of Foothill's indemnification of any such
issuing bank.
xviii
(c) Borrower hereby authorizes and directs any bank that issues a letter of
credit guaranteed by Foothill to deliver to Foothill all instruments, documents,
and other writings and property received by the issuing bank pursuant to such
letter of credit, and to accept and rely upon Foothill's instructions and
agreements with respect to all matters arising in connection with such letter of
credit and the related application. Borrower may or may not be the "applicant"
or "account party" with respect to such letter of credit.
(d) Any and all service charges, commissions, fees, and costs incurred by
Foothill relating to the letters of credit guaranteed by Foothill shall be
considered Foothill Expenses for purposes of this Agreement and immediately
shall be reimbursable by Borrower to Foothill. On the first day of each month,
Borrower will pay Foothill a fee equal to two percent (2.00%) per annum times
the average Daily Balance of the L/Cs and L/C Guarantees that were outstanding
during the immediately preceding month. Service charges, commissions, fees, and
costs may be charged to Borrower's loan account at the time the service is
rendered or the cost is incurred.
(e) Immediately upon the termination of this Agreement, Borrower agrees to
either: (i) provide cash collateral to be held by Foothill in an amount equal
to the maximum amount of Foothill's obligations under L/Cs plus the maximum
amount of Foothill's obligations to any Person under outstanding L/C Guarantees,
or (ii) cause to be delivered to Foothill releases of all of Foothill's
obligations under its outstanding L/Cs and L/C Guarantees. At Foothill's
discretion, any proceeds of Collateral, Canadian Collateral, or Other Guarantor
Collateral received by Foothill after the occurrence and during the continuation
of an Event of Default may be held as the cash collateral required by this
SECTION 2.2(e).
2.3 OVERADVANCES. If, at any time or for any reason, the amount of Obligations
owed by Borrower to Foothill pursuant to SECTIONS 2.1 AND 2.2 is greater than
either the dollar or percentage limitations set forth in SECTIONS 2.1 OR 2.2
(an "Overadvance"), Borrower immediately shall pay to Foothill, in cash, the
amount of such excess to be used by Foothill first, to repay non-contingent
Obligations and, thereafter, to be held by Foothill as cash collateral to secure
Borrower's obligation to repay Foothill for all amounts paid pursuant to L/Cs or
L/C Guarantees.
2.4 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. All Obligations, except for undrawn L/Cs and L/C Guarantees,
shall bear interest, on the average Daily Balance, at a per annum rate of two
(2.00) percentage points above the Reference Rate.
(b) Default Rate. (i) All Obligations, except for undrawn L/Cs and L/C
Guarantees, shall bear interest, from and after the occurrence and during the
continuance of an Event of Default, at a per annum rate equal to five (5.00)
percentage points above the Reference Rate. (ii) From and after the occurrence
and during the continuance of an Event of Default, the fee provided in SECTION
2.2(d) shall be increased to a fee equal to five percent (5.00%) per annum
times the average Daily Balance of the undrawn L/Cs and L/C Guarantees that were
outstanding during the immediately preceding month.
xix
(c) Minimum Interest. In no event shall the rate of interest chargeable
hereunder be less than nine percent (9.00%) per annum. To the extent that
interest accrued hereunder at the rate set forth herein is less than the
foregoing minimum rate, the interest rate chargeable hereunder automatically
shall be increased.
(d) Payments. Interest hereunder shall be due and payable, in arrears, on the
first day of each month during the term hereof. Borrower hereby authorizes
Foothill, at its option, without prior notice to Borrower, to charge such
interest, all Foothill Expenses (as and when incurred), and all installments
or other payments due under any note or other Loan Document to Borrower's
loan account, which amounts thereafter shall accrue interest at the rate
then applicable hereunder; PROVIDED, HOWEVER, that Borrower shall be
billed all such amounts on a monthly basis and such billed amounts, which
shall be due and payable within ten (10) Business Days of the date of the
statement of such amounts, shall be credited to Borrower's loan account
when and to the extent paid by Borrower. Any interest not paid when due
shall be compounded by becoming a part of the Obligations, and such interest
shall thereafter accrue interest at the rate then applicable hereunder.
(e) Computation. The Reference Rate as of the date of this Agreement is nine
percent (9.00%) per annum. In the event the Reference Rate is changed from time
to time hereafter, the applicable rate of interest hereunder automatically and
immediately shall be increased or decreased by an amount equal to such change in
the Reference Rate. All interest and fees chargeable under the Loan Documents
shall be computed on the basis of a three hundred sixty (360) day year for the
actual number of days elapsed.
(f) Intent to Limit Charges to Maximum Lawful Rate. In no event shall the
interest rate or rates payable under this Agreement, plus any other amounts paid
in connection herewith, exceed the highest rate permissible under any law that a
court of competent jurisdiction shall, in a final determination, deem
applicable. Borrower and Foothill, in executing this Agreement, intend legally
to agree upon the rate or rates of interest and manner of payment stated within
it; PROVIDED, HOWEVER, that, anything contained herein to the contrary
notwithstanding, if said rate or rates of interest or manner of payment exceeds
the maximum allowable under applicable law, then, IPSO FACTO as of the date
of this Agreement, Borrower is and shall be liable only for the payment of such
maximum as allowed by law, and payment received from Borrower in excess of such
legal maximum, whenever received, shall be applied to reduce the principal
balance of the Obligations to the extent of such excess.
2.5 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The receipt of any wire
transfer of funds, check, or other item of payment by Foothill (whether from
transfers to Foothill by the Lockbox Banks pursuant to the Lockbox Agreements or
otherwise) immediately shall be applied to provisionally reduce the Obligations,
but shall not be considered a payment on account unless such wire transfer is of
immediately available federal funds and is made to the appropriate deposit
account of Foothill or unless and until such check or other item of payment is
honored when presented for payment. From and after the Closing Date, Foothill
shall be entitled to charge Borrower and Canadian Guarantor for two (2) Business
Days of `clearance' at the rate set forth in SECTION 2.4(a) or SECTION
2.4(b)(i), as applicable, on all collections, checks, wire transfers, or other
items of payment in respect of Accounts
xx
that are received by Foothill (regardless of whether forwarded by the Lockbox
Banks to Foothill, whether provisionally applied to reduce the Obligations,
or otherwise); PROVIDED, HOWEVER, that for any month during which no revolving
advances under SECTION 2.1 (other than advances deemed made thereunder pursuant
to SECTION 2.4(d) in respect of interest and Foothill Expenses) and no undrawn
or unreimbursed L/Cs or L/C Guarantees under SECTION 2.2 are outstanding at any
time, Foothill shall be entitled to charge Borrower and Canadian Guarantor for
one (1) Business Day of clearance on such collections, checks, wire transfers,
or other items of payment in respect of Accounts that are received by Foothill.
This across-the-board two (2) Business Day (or one (1) Business Day, as the
case may be) clearance charge on all such receipts is acknowledged by the
parties to constitute an integral aspect of the pricing of Foothill's facility
to Borrower, and shall apply irrespective of the characterization of whether
such receipts are owned by Borrower or Canadian Guarantor, as the case may be,
or Foothill, and irrespective of the level of Borrower's Obligations to
Foothill. Should any check or item of payment not be honored when presented
for payment, then Borrower shall be deemed not to have made such payment, and
interest shall be recalculated accordingly. Anything to the contrary
contained herein notwithstanding, any wire transfer, check, or other item of
payment shall be deemed received by Foothill only if it is received into
Foothill's Operating Account (as such account is identified in the Lockbox
Agreements) on or before 11:00 a.m. Los Angeles time. If any wire transfer,
check, or other item of payment is received into Foothill's Operating Account
(as such account is identified in the Lockbox Agreements) after 11:00 a.m.
Los Angeles time it shall be deemed to have been received by Foothill as of
the opening of business on the immediately following Business Day.
2.6 STATEMENTS OF OBLIGATIONS. Foothill shall render statements to Borrower of
the Obligations, including principal, interest, fees, and including an
itemization of all charges and expenses constituting Foothill Expenses owing,
and such statements shall be conclusively presumed to be correct and accurate
and constitute an account stated between Borrower and Foothill unless, within
thirty (30) days after receipt thereof by Borrower, Borrower shall deliver to
Foothill by registered or certified mail at its address specified in SECTION
12, written objection thereto describing the error or errors contained in any
such statements.
2.7 FEES. Borrower shall pay to Foothill the following fees:
(a) Commitment Fee. A commitment fee equal to One Hundred Fifty Thousand
Dollars ($150,000) that Borrower and Foothill hereby acknowledge to have been
paid previously by Borrower concurrently with Borrower's acceptance of the
commitment letter of March 23, 1995.
(b) Unused Line Fee. On the first day of each month during the term of this
Agreement, a fee, in arrears, in an amount equal to one-quarter of one percent
(0.25%) per annum times the Average Unused Portion of the Maximum Amount;
(c) Annual Facility Fee. On each anniversary of the Effective Date, a fee in an
amount equal to One Hundred Thousand Dollars ($100,000), such fee to be fully
earned on each such anniversary;
xxi
(d) Financial Examination, Documentation, and Appraisal Fees. Foothill's
customary fee of Six Hundred Fifty Dollars ($650) per day per examiner, plus
out-of-pocket expenses for each financial analysis and examination of Borrower
performed by Foothill or its agents; and Foothill's customary appraisal fee of
One Thousand Five Hundred Dollars ($1,500) per day per appraiser, plus
out-of-pocket expenses for each appraisal of the Collateral, Canadian
Collateral, or Other Guarantor Collateral performed by Foothill or its agents;
and
(e) Servicing Fee. On the first day of each month during the term of this
Agreement, and thereafter so long as any Obligations are outstanding, a
servicing fee in an amount equal to Five Thousand Dollars ($5,000) per month.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO EFFECTIVENESS OF AGREEMENT. The effectiveness of
this Agreement is subject to the fulfillment, to the satisfaction of Foothill
and its counsel, of each of the following conditions:
(a) the Effective Date shall occur on or before May 15, 1995;
(b) Foothill shall have received searches reflecting the filing of its financing
statements and fixture filings;
(c) Foothill shall have received each of the following documents, duly executed,
and each such document shall be in full force and effect:
i) the Guaranties;
ii) the UCC Security Agreements;
iii) the Canadian Security Agreement;
iv) the Copyright Security Agreement;
v) the Patent Security Agreement;
vi) the Trademark Security Agreement; and
vii) the Stock Pledge Agreement;
(d) Foothill shall have received possession of the original stock certificates
representing or evidencing all of the issued and outstanding shares of stock of
each of the Obligors (other than Interleaf), together with stock powers with
respect thereto duly endorsed in blank;
xxii
(e) Foothill shall have received a certificate from the Secretary (or Clerk) of
each Debtor attesting to the resolutions of that Debtor's Board of Directors
authorizing its execution, delivery, and performance of this Agreement and the
other Loan Documents to which that Debtor is a party and authorizing specific
officers of that Debtor to execute same;
(f) Foothill shall have received copies of each Debtor's By-laws and Articles of
Incorporation (or Organization), as amended, modified, or supplemented to the
Effective Date, certified by the Secretary (or Clerk) of that Debtor;
(g) Foothill shall have received a certificate from the Secretary (or Clerk) of
each Guarantor attesting to the resolutions of that Guarantor's Board of
Directors authorizing its execution, delivery, and performance of the Loan
Documents to which that Guarantor is a party and authorizing specific officers
of that Guarantor to execute same;
(h) Foothill shall have received copies of each Guarantor's By-laws and
Memorandum or Articles of Incorporation (or Organization), as amended, modified,
or supplemented to the Effective Date, certified by the Secretary (or Clerk) of
that Guarantor;
(i) Foothill shall have received a certificate of corporate status with respect
to each Obligor dated within ten (10) days of the Effective Date, by the
appropriate officer of the jurisdiction of incorporation of that Obligor, which
certificate shall indicate that that Obligor is in good standing in such
jurisdiction;
(j) Foothill shall have received certificates of corporate status with respect
to each Obligor, each dated within fifteen (15) days of the Effective Date,
such certificates to be issued by the appropriate officer of the jurisdictions
in which its failure to be duly qualified or licensed would have a material
adverse effect on the financial condition or properties and assets of that
Obligor, which certificates shall indicate that that Obligor is in good
standing; and
(k) Foothill shall have received an opinion of the Obligors' counsel in form
and substance satisfactory to Foothill in its sole discretion.
3.2 CONDITIONS PRECEDENT TO INITIAL ADVANCE, L/C, OR L/C GUARANTY. The
obligation of Foothill to make the initial advance or to provide the initial L/C
or L/C Guaranty is subject to the fulfillment, to the satisfaction of Foothill
and its counsel, of each of the following conditions on or before the Closing
Date:
(a) Each of the conditions set forth in SECTION 3.1 shall have been fulfilled,
or else shall have been waived by Foothill;
(b) Foothill shall have received each of the following documents, duly executed,
and each such document shall be in full force and effect:
xxiii
i) the Lock Box Agreement(s) among the applicable Lockbox Bank, Foothill, and
each of the Debtors; and
ii) the Source Code Escrow Agreement, in form and substance satisfactory to
Foothill;
(c) Foothill shall have received the certified copies of the policies of
insurance, together with the endorsements thereto, as are required by SECTION
6.12 hereof, the form and substance of which shall be satisfactory to Foothill
and its counsel;
(d) Foothill shall have received landlord waivers and, if requested by Foothill,
mortgagee waivers from the lessors and mortgagees of the locations where the
Inventory or Equipment is located;
(e) Foothill shall have received evidence satisfactory to it that, after giving
effect to the initial advances to be made on the Closing Date (including the
payment of the fees payable to Foothill hereunder), Borrower shall have not less
than $5,000,000 of unrestricted cash, cash equivalents, or Availability, or any
combination thereof;
(f) There shall not have occurred any material adverse change in the financial
condition of Borrower or Canadian Guarantor, taken as a whole (from the
financial condition thereof as reflected in the financial statements for the
fiscal period ended March 31, 1995 provided to Foothill), nor shall there exist
any material impairment of the value of the Collateral, the Canadian Collateral,
or the Other Guarantor Collateral, taken as a whole;
(g) Foothill shall have received a supplemental opinion of the Obligors' counsel
in form and substance satisfactory to Foothill in its sole discretion; and
(h) all other documents and legal matters in connection with the transactions
contemplated by this Agreement shall have been delivered or executed or recorded
and shall be in form and substance satisfactory to Foothill and its counsel.
3.3 CONDITIONS PRECEDENT TO ALL ADVANCES, L/CS, OR L/C GUARANTEES. The
following shall be conditions precedent to all advances, L/Cs, or L/C Guarantees
hereunder:
(a) the representations and warranties contained in this Agreement and the other
Loan Documents shall be true and correct in all respects on and as of the date
of such advance, L/C, or L/C Guaranty, as though made on and as of such date
(except to the extent that such representations and warranties relate solely to
an earlier date);
(b) no Event of Default or event which with the giving of notice or passage of
time would constitute an Event of Default shall have occurred and be continuing
on the date of such advance, L/C, or L/C Guaranty, nor shall either result from
the making thereof; and
xxiv
(c) no injunction, writ, restraining order, or other order of any nature
prohibiting, directly or indirectly, the making of such advance or the issuance
of such L/C or L/C Guaranty shall have been issued and remain in force by any
governmental authority against Borrower, Foothill, or any of their Affiliates.
3.4 TERM. This Agreement shall become effective upon the execution and
delivery hereof by Borrower and Foothill and shall continue in full force and
effect for a term ending on the date (the "Renewal Date") that is two (2) years
from the Effective Date and automatically shall be renewed for successive one
(1) year periods thereafter, unless sooner terminated pursuant to the terms
hereof. Either party may terminate this Agreement effective on the Renewal Date
or on any one (1) year anniversary of the Renewal Date by giving the other party
at least ninety (90) days prior written notice by registered or certified mail,
return receipt requested. The foregoing notwithstanding, Foothill shall have
the right to terminate its obligations under this Agreement immediately and
without notice upon the occurrence and during the continuation of an Event of
Default.
3.5 EFFECT OF TERMINATION. On the date of termination of this Agreement, all
Obligations (including contingent reimbursement obligations under any
outstanding L/Cs or L/C Guarantees) immediately shall become due and payable
without notice or demand. No termination of this Agreement, however, shall
relieve or discharge Borrower of Borrower's duties, Obligations, or covenants
hereunder, and Foothill's continuing security interests in the Collateral,
the Canadian Collateral, and the Other Guarantor Collateral shall remain in
effect until all Obligations have been fully and finally discharged and
Foothill's obligation to provide advances hereunder is terminated. If
Borrower has sent a notice of termination pursuant to the provisions of
Section 3.4, but fails to pay all Obligations within thirty days following
the date set forth in said notice, then Foothill may, but shall not be
required to, renew this Agreement for an additional term of one (1) year.
3.6 EARLY TERMINATION BY BORROWER. The provisions of SECTION 3.4 that allow
termination of this Agreement by Borrower only on the Renewal Date and certain
anniversaries thereof notwithstanding, Borrower has the option, at any time upon
ninety (90) days prior written notice to Foothill, to terminate this Agreement
by paying to Foothill, in cash, the Obligations (including an amount equal to
the full amount of the L/Cs or L/C Guarantees), together with a premium (the
"Early Termination Premium") equal to: (a) during the period of time from and
after the date of execution and delivery of this Agreement through the date that
is twelve months after the Effective Date, the greater of (i) the total interest
for the immediately preceding six (6) months, or (ii) One Hundred Fifty Thousand
Dollars ($150,000); (b) during the period of time after the date that is twelve
months after the Effective Date and through the date that is eighteen months
after the Effective Date, the greater of (i) the total interest for the
immediately preceding six (6) months, or (ii) One Hundred Thousand Dollars
($100,000); and (c) thereafter (except on the Renewal Date or an anniversary
thereof), the greater of (i) the total interest for the immediately preceding
four (4) months, or (ii) Fifty Thousand Dollars ($50,000).
3.7 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates this Agreement
upon the occurrence of an Event of Default, in view of the impracticability and
extreme difficulty of ascertaining actual damages and by mutual agreement of the
parties as to a reasonable calculation of Foothill's lost profits
xxv
as a result thereof, Borrower shall pay to Foothill upon the effective date
of such termination, a premium in an amount equal to the Early Termination
Premium. The Early Termination Premium shall be presumed to be the amount
of damages sustained by Foothill as the result of the early termination and
Borrower agrees that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this SECTION 3.7
shall be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Each Debtor hereby grants to Foothill a
continuing security interest in all currently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by the Obligors of each of
their respective covenants and duties under the Loan Documents. Foothill's
security interests in the Collateral shall attach to all Collateral without
further act on the part of Foothill or Borrower. Anything contained in this
Agreement or any other Loan Document to the contrary notwithstanding, except for
the sale or license of Collateral to buyers in the ordinary course of business,
Borrower has no authority, express or implied, to dispose of any item or
portion of the Collateral; PROVIDED, HOWEVER, that subject to the provisions
of this Agreement, each Debtor may use its unrestricted cash and cash
equivalents for such Debtor's general corporate purposes.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, Borrower shall,
immediately upon the request of Foothill, endorse and assign such Negotiable
Collateral to Foothill and deliver physical possession of such Negotiable
Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, NEGOTIABLE COLLATERAL.
On or before the Closing Date, Foothill, each of the Debtors and Canadian
Guarantor, and the Lockbox Banks shall enter into the Lockbox Agreements, in
form and substance satisfactory to Foothill in its sole discretion, pursuant to
which all of Borrower's and Canadian Guarantor's cash receipts, checks, and
other items of payment (including, insurance proceeds, proceeds of cash sales,
rental proceeds, and tax refunds) will be forwarded to Foothill on a daily
basis. The foregoing to the contrary notwithstanding, so long as (a) no Event
of Default has occurred, (b) Foothill has not deemed itself insecure (in
accordance with Section 1208 of the UCC), (c) there is Availability of not less
than the greater of (i) One Million Dollars ($1,000,000) and (ii) twenty five
percent (25%) of the lesser of (y) the Borrowing Base and (z) the Maximum
Amount, and (d) as of any date of determination, other than advances under
SECTION 2.1 deemed made thereunder pursuant to SECTION 2.4(d) in respect of
interest and Foothill Expenses, there are no Obligations in respect of advances
to Borrower under SECTION 2.1 outstanding for more than two (2) weeks, then
Foothill agrees that such funds of Borrower received by the Lockbox Bank in
respect thereof automatically may be made available by that Lockbox Bank to
Borrower; if, on the other hand, either (i) an Event of Default has occurred,
(ii) Foothill has deemed itself insecure (in accordance with Section 1208 of the
UCC), (iii) there is Availability of less than the greater of (y) One Million
Dollars ($1,000,000) and (z) twenty five percent (25%) of the lesser of (1) the
Borrowing Base and (2) the Maximum Amount, or (iv) as of any
xxvi
date of determination, other than advances under SECTION 2.1 deemed made
thereunder pursuant to SECTION 2.4(d) in respect of interest and Foothill
Expenses, there exist any Obligations in respect of advances to Borrower
under SECTION 2.1 outstanding for more than two (2) weeks, then Foothill
shall have the automatic right to cause that Lockbox Bank thereafter to
remit such funds to Foothill and to apply such remitted funds to the
repayment of the Obligations. The foregoing to the contrary notwithstanding,
so long as (a) no Event of Default has occurred, (b) Foothill has not deemed
itself insecure (in accordance with Section 1208 of the UCC), and (c) there
is Availability of not less than the greater of (i) One Million Dollars
($1,000,000) and (ii) twenty five percent (25%) of the lesser of (y) the
Borrowing Base and (z) the Maximum Amount, then Foothill agrees that such
funds of Canadian Guarantor received by the Lockbox Bank in respect thereof
automatically may be made available by that Lockbox Bank to Canadian
Guarantor; if, on the other hand, either (i) an Event of Default has occurred,
(ii) Foothill has deemed itself insecure (in accordance with Section 1208
of the UCC), or (iii) there is Availability of less than the greater of
(y) One Million Dollars ($1,000,000) and (z) twenty five percent (25%) of
the lesser of (1) the Borrowing Base and (2) the Maximum Amount, then
Foothill shall have the automatic right to cause that Lockbox Bank thereafter
to remit such funds to Foothill and to apply such remitted funds to the
repayment of the Obligations.
At any time that an Event of Default has occurred and is continuing or Foothill
deems itself insecure (in accordance with Section 1208 of the Code), Foothill or
Foothill's designee may: (a) notify customers or Account Debtors of Borrower and
Canadian Guarantor that the Accounts of Borrower and Canadian Guarantor, General
Intangibles, or Negotiable Collateral have been assigned to Foothill or that
Foothill has a security interest therein; and (b) collect the Accounts of
Borrower and Canadian Guarantor, General Intangibles, and Negotiable Collateral
directly and charge the collection costs and expenses to Borrower's loan
account. Borrower agrees that it will hold (and cause Canadian Guarantor to
hold) in trust for Foothill, as Foothill's trustee, any cash receipts, checks,
and other items of payment (including, insurance proceeds, proceeds of cash
sales, rental proceeds, and tax refunds) that such Obligor receives and
immediately will deliver said cash receipts, checks, and other items of payment
to Foothill in their original form as received by such Obligor.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time upon the
request of Foothill, Borrower shall execute and deliver, and cause each
Guarantor to execute and deliver, to Foothill all financing statements,
continuation financing statements, fixture filings, security agreements, chattel
mortgages, pledges, assignments, endorsements of certificates of title,
applications for title, affidavits, reports, notices, schedules of accounts,
letters of authority, and all other documents that Foothill may reasonably
request, in form satisfactory to Foothill, to perfect and continue perfected
Foothill's security interests in the Collateral, the Canadian Collateral, and
the Other Guarantor Collateral, and in order to fully consummate all of the
transactions contemplated hereby and under the other the Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes, constitutes, and
appoints Foothill (and any of Foothill's officers, employees, or agents
designated by Foothill) as Borrower's true and lawful attorney, with power to:
(a) if Borrower refuses to, or fails timely to execute and deliver any of the
documents described in
xxvii
SECTION 4.4, sign the name of Borrower on any of the documents described in
SECTION 4.4; (b) at any time that an Event of Default has occurred and is
continuing or Foothill deems itself insecure (in accordance with Section 1208
of the Code), notify the post office authorities to change the address for
delivery of Borrower's mail to an address designated by Foothill, to
receive and open all mail addressed to Borrower, and to retain all mail relating
to the Collateral and forward all other mail to Borrower; and (c) at any time
that an Event of Default has occurred and is continuing or Foothill deems itself
insecure (in accordance with Section 1208 of the Code), settle and adjust
disputes and claims respecting the Accounts directly with Account Debtors, for
amounts and upon terms which Foothill determines to be reasonable, and Foothill
may cause to be executed and delivered any documents and releases which Foothill
determines to be necessary. The appointment of Foothill as Borrower's attorney,
and each and every one of Foothill's rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully and
finally repaid and performed and Foothill's obligation to extend credit
hereunder is terminated.
4.6 RIGHT TO INSPECT. Foothill (through any of its officers, employees, or
agents) shall have the right, from time to time hereafter to inspect Borrower's
Books and to check, test, and appraise the Collateral in order to verify
Borrower's financial condition or the amount, quality, value, condition of, or
any other matter relating to, the Collateral.
5.REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Foothill, as of the Effective Date and as of
each Compliance Date, as follows:
5.1 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title to the
Collateral, free and clear of liens, claims, security interests, or
encumbrances, except for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are, at the time of the creation
thereof and as of each date on which Borrower includes them in a Borrowing Base
calculation or certification, bona fide existing obligations created by the sale
or license and delivery of Inventory or the rendition of services to Account
Debtors in the ordinary course of Borrower's and Canadian Guarantor's respective
businesses, unconditionally owed to Borrower or Canadian Guarantor, as the case
may be, without known defenses, disputes, offsets, counterclaims, or rights of
return or cancellation. The property or services giving rise to such Eligible
Accounts has been delivered to the Account Debtor, or to the Account Debtor's
agent for immediate shipment to and unconditional acceptance (except for
returns, in the ordinary course of business, of products that fail to conform
with standard specifications) by the Account Debtor. At the time of the
creation of an Eligible Account and as of each date on which Borrower includes
an Eligible Account in a Borrowing Base calculation or certification, neither
Borrower nor Canadian Guarantor has received notice of actual or imminent
bankruptcy, insolvency, or material impairment of the financial condition of any
applicable Account Debtor regarding such Eligible Account.
xxviii
5.3 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and Equipment are not
stored with a bailee, warehouseman, or similar party (without Foothill's prior
written consent) and are located only at the locations identified on SCHEDULE
6.15 or otherwise permitted by SECTION 6.15.
5.4 INVENTORY RECORDS. Each Borrower and Canadian Guarantor now keeps, and
hereafter at all times shall keep, correct and accurate records itemizing and
describing the kind, type, quality, and quantity of the Inventory, and that
Borrower's or Canadian Guarantor's cost therefor, as the case may be.
5.5 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. (a) The chief executive office
of Interleaf is located at the address indicated in the preamble to this
Agreement and Interleaf's FEIN is 04-2729042; (b) the chief executive office of
Avalanche is located at the address indicated in the preamble to this Agreement
and Avalanche's FEIN is 84-1036408; (c) the chief executive office of Canadian
Guarantor is located at 350 Albert Street, Suite 2010, Ottawa, Ontario, Canada
K1R 1A4; and (d) the chief executive office of IL/Securities is located at
Prospect Place, 9 Hillside Avenue, Waltham, Massachusetts 02154 and
IL/Securities' FEIN is 04-2951065.
5.6 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each Obligor is duly
organized and existing and in good standing under the laws of the jurisdiction
of its respective incorporation and qualified and licensed to do business in,
and in good standing in, any jurisdiction where the failure to be so licensed or
qualified could reasonably be expected to have a material adverse effect on the
business, operations, condition (financial or otherwise), finances, or prospects
of the Obligors, taken as a whole, or on the value of the Collateral, the
Canadian Collateral, or the Other Guarantor Collateral, taken as a whole, to
Foothill. Interleaf has no Subsidiaries other than the other Obligors and the
Subsidiaries listed on SCHEDULE 5.6.
5.7 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and performance
of each of the Loan Documents to which each Obligor is a party are within that
Obligor's corporate powers, have been duly authorized, and are not in conflict
with nor constitute a breach of any provision contained in that Obligor's
Memorandum or Articles of Incorporation, or By-laws (or other charter documents,
as applicable), nor will they constitute an event of default under any agreement
that is material to the Obligors, taken as a whole, to which that Obligor is a
party or by which its properties or assets may be bound.
5.8 LITIGATION. There are no actions or proceedings pending by or against any
Obligor before any court or administrative agency and Borrower does not have
knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving any Obligor, except for: (a) ongoing collection matters in which an
Obligor is the plaintiff; (b) matters disclosed on SCHEDULE 5.8 that, if
decided adversely to that Obligor would not materially impair the prospect of
repayment of the Obligations or materially impair the value or priority of
Foothill's security interests in the Collateral, the Canadian Collateral, or the
Other Guarantor Collateral; and (c) matters arising after the date hereof that,
if decided adversely to that Obligor would not materially impair the prospect
of repayment of the Obligations or materially impair
xxix
the value or priority of Foothill's security interests in the Collateral, the
Canadian Collateral, or the Other Guarantor Collateral.
5.9 NO MATERIAL ADVERSE CHANGE IN FINANCIAL CONDITION. All financial
statements relating to any Obligor that have been delivered by Borrower (or
caused by any Debtor to have been delivered) to Foothill have been prepared in
accordance with GAAP and fairly present such Obligor's financial condition as of
the date thereof and such Obligor's results of operations for the period then
ended. Except for the Designated Write-Down, there has not been a material
adverse change in the financial condition of the Obligors, taken as a whole,
since the date of the latest financial statements submitted to Foothill on or
before the Effective Date.
5.10 SOLVENCY. The Obligors, taken as a whole, are Solvent. No transfer of
property is being made by any Obligor and no obligation is being incurred by any
Obligor in connection with the transactions contemplated by this Agreement or
the other Loan Documents with the intent to hinder, delay, or defraud either
present or future creditors of the Obligors.
5.11 EMPLOYEE BENEFITS. Each Plan is in compliance in all material respects
with the applicable provisions of ERISA and the IRC (or the comparable Canadian
counterpart). Each Qualified Plan and Multiemployer Plan has been determined by
the Internal Revenue Service (or the comparable Canadian counterpart) to qualify
under Section 401 of the IRC (or the comparable Canadian counterpart), and the
trusts created thereunder have been determined to be exempt from tax, and, to
the best knowledge of Borrower, nothing has occurred that would cause the loss
of such qualification or tax-exempt status. There are no outstanding
liabilities under ERISA with respect to any Plan maintained or sponsored by
Borrower or any ERISA Affiliate, nor with respect to any Plan to which Borrower
or any ERISA Affiliate contributes or is obligated to contribute which could
reasonably be expected to have a material adverse effect on the financial
condition of Borrower. No Plan subject to ERISA has any Unfunded Benefit
Liability which could reasonably be expected to have a material adverse effect
on the financial condition of Borrower. Neither Borrower nor any ERISA
Affiliate has transferred any Unfunded Benefit Liability to a person other than
Borrower or an ERISA Affiliate or has otherwise engaged in a transaction that
could reasonably be expected to have a material adverse effect on the financial
condition of Borrower. Neither Borrower nor any ERISA Affiliate has incurred
nor reasonably expects to incur (x) any liability (and no event has occurred
which, with the giving of notice under ERISA, would result in such liability)
under ERISA with respect to a Multiemployer Plan, or (y) any liability under
ERISA (other than premiums due but not delinquent under ERISA) with respect to a
Plan, which could, in either event, reasonably be expected to have a material
adverse effect on the financial condition of Borrower or Canadian Guarantor. No
application for a funding waiver or an extension of any amortization period has
been made with respect to any Plan. No ERISA Event has occurred or is
reasonably expected to occur with respect to any Plan which could reasonably be
expected to have a material adverse effect on the financial condition of
Borrower. Borrower and each ERISA Affiliate have complied in all material
respects with the notice and continuation coverage requirements of Section 4980B
of the IRC (or the comparable Canadian counterpart).
xxx
5.12 ENVIRONMENTAL CONDITION. None of the Debtors' properties or assets has
ever been used by any Debtor or, to the best of Borrower's knowledge, by
previous owners or operators in the disposal of, or to produce, store, handle,
treat, release, or transport, any Hazardous Materials. None of the Debtors'
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a Hazardous Materials
disposal site, or a candidate for closure pursuant to any environmental
protection statute. No lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned or
operated by any Debtor. Neither Borrower, nor, to the best knowledge of
Borrower, any other Debtor, has received a summons, citation, notice, or
directive from the Environmental Protection Agency (or the comparable Canadian
counterpart) or any other federal, state, or provincial governmental agency
concerning any action or omission by any Debtor resulting in the releasing or
disposing of Hazardous Materials into the environment.
5.13 RELIANCE BY FOOTHILL; CUMULATIVE. Each warranty and representation
contained in this Agreement automatically shall be deemed repeated with each
advance or issuance of an L/C or L/C Guaranty and shall be conclusively
presumed to have been relied on by Foothill regardless of any investigation
made or information possessed by Foothill. The warranties and representations
set forth herein shall be cumulative and in addition to any and all other
warranties and representations that Borrower now or hereafter shall give,
or cause to be given, to Foothill.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall be
available and until full and final payment of the Obligations, and unless
Foothill shall otherwise consent in writing, Interleaf shall do, and either
shall do on behalf of Avalanche or cause Avalanche to do, all of the following:
6.1 ACCOUNTING SYSTEM. Maintain a standard and modern system of accounting in
accordance with GAAP, and cause Canadian Guarantor to maintain a standard and
modern system of accounting in accordance with Canadian GAAP, in each case with
ledger and account cards or computer tapes, discs, printouts, and records
pertaining to the Collateral or the Canadian Collateral, as the case may be,
which contain information as from time to time may be requested by Foothill.
Keep, and cause Canadian Guarantor to keep, proper books of account showing all
sales, claims, and allowances on its Inventory.
6.2 COLLATERAL REPORTS. Deliver, and cause Canadian Guarantor to deliver, to
Foothill, no later than the tenth (10th) day of each month during the term of
this Agreement, a detailed aging, by total, of the Accounts, a reconciliation
statement, and a summary aging, by vendor, of all accounts payable and any book
overdraft. Original sales invoices evidencing daily sales shall be mailed by
each Debtor or caused by Borrower to be mailed by Canadian Guarantor to each
Account Debtor with, at Foothill's request, a copy to Foothill, and, at
Foothill's direction, the invoices shall indicate on their face that the Account
has been assigned to Foothill and that all payments are to be made directly to
Foothill. Deliver, and cause Canadian Guarantor to deliver, to Foothill, as
Foothill may from time to time require, collection reports, sales journals,
invoices, original delivery receipts, customer's purchase
xxxi
orders, shipping instructions, bills of lading, and other documentation
respecting shipment arrangements. Absent such a request by Foothill, copies
of all such documentation shall be held by Borrower, or caused to be held by
Canadian Guarantor, as custodian for Foothill. In addition, from time to
time, Borrower shall deliver, and cause Canadian Guarantor to deliver, to
Foothill such other and additional financial and collateral information or
documentation as Foothill may request.
6.3 SCHEDULES OF ACCOUNTS. With such regularity as Foothill shall require,
provide Foothill with schedules describing all Accounts of such Debtor.
Foothill's failure to request such schedules or Borrower's or Canadian
Guarantor's failure to execute and deliver such schedules shall not affect or
limit Foothill's security interests or other rights in and to the Accounts.
6.4 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to Foothill: (a) as
soon as available, but in any event within forty-five (45) days after the end of
each quarter during each of Interleaf's fiscal years, a company prepared balance
sheet, income statement, and cash flow statement covering Interleaf's operations
during such quarter; PROVIDED, HOWEVER, that, if reasonably requested by
Foothill, thereafter and in lieu of the foregoing quarterly financial
statements, Interleaf shall deliver to Foothill as soon as available, but in
any event within thirty (30) days after the end of each month during each of
Interleaf's fiscal years, a company prepared balance sheet, income statement,
and cash flow statement covering Interleaf's operations during such month;
and (b) as soon as available, but in any event within ninety (90) days after
the end of each of Interleaf's fiscal years, financial statements of Interleaf
for each such fiscal year, audited by independent certified public accountants
reasonably acceptable to Foothill and certified, without any qualifications,
by such accountants to have been prepared in accordance with GAAP, together
with a certificate of such accountants addressed to Foothill stating that such
accountants do not have knowledge of the existence of any event or condition
constituting an Event of Default, or that would, with the passage of time or
the giving of notice, constitute an Event of Default. Such audited financial
statements shall include a balance sheet, profit and loss statement, and cash
flow statement, and, if prepared, such accountants' letter to management.
Interleaf agrees to deliver unaudited financial statements prepared on a
consolidating basis so as to present Borrower and each Obligor (including
Canadian Guarantor, with conversion to United States GAAP) separately, and
audited financial statements prepared on a consolidated basis.
Together with the above, Interleaf also shall deliver to Foothill Interleaf's
Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K Current
Reports, and any other filings made by Interleaf with the Securities and
Exchange Commission, if any, as soon as the same are filed, or any other
information that is provided by Interleaf to its shareholders, and any other
report reasonably requested by Foothill relating to the Collateral, the Canadian
Collateral, or the Other Guarantor Collateral, or the financial condition of
Borrower.
Each quarter (or month, as the case may be), together with the financial
statements provided pursuant to SECTION 6.4(a), Interleaf shall deliver to
Foothill a certificate signed by its chief financial officer to the effect that:
(i) all reports, statements, or computer prepared information of any kind or
nature delivered or caused to be delivered to Foothill hereunder have been
prepared in accordance with GAAP and fairly present the financial condition of
Borrower and the Guarantors; (ii) each Obligor is
xxxii
in timely compliance with all of its covenants (including SECTIONS 7.1(d)
AND 7.14, and detailed reports of fulfillment of the respective conditions
set forth therein) and agreements hereunder and under the other Loan Documents
to which it is a party; (iii) the representations and warranties of each Debtor
contained in this Agreement and of each Obligor contained in the Loan Documents
to which it is a party are true and correct in all material respects on and as
of the date of such certificate (a "Compliance Date"), as though made on and as
of such date (except to the extent that such representations and warranties
relate solely to an earlier date); and (iv) on the date of delivery of such
certificate to Foothill there does not exist any condition or event that
constitutes an Event of Default (or, in each case, to the extent of any
non-compliance, describing such non-compliance as to which he or she may
have knowledge and what action such Obligor has taken, is taking, or proposes
to take with respect thereto).
Borrower (and, if applicable, Canadian Guarantor) shall have issued written
instructions to its independent certified public accountants authorizing them
to communicate with Foothill and to release to Foothill whatever financial
information concerning Borrower or any of the other Obligors that Foothill may
request. Foothill agrees to use reasonable best efforts to provide prior or
concurrent telephonic notice to Interleaf of any such request by Foothill;
PROVIDED, HOWEVER, that the release of such information shall not be
conditioned upon Foothill's providing such notice, nor shall Foothill
in any way or manner be liable or responsible for any failure to provide
such notice. Borrower hereby irrevocably authorizes and directs all
auditors, accountants, or other third parties to deliver to Foothill,
at Borrower's expense, copies of Borrower's and the other Obligors'
financial statements, papers related thereto, and other accounting records
of any nature in their possession, and to disclose to Foothill any
information they may have regarding Borrower's or the other Obligors'
business affairs and financial conditions.
6.5 TAX RETURNS. Upon Foothill's request, Borrower agrees to deliver to
Foothill copies of each of Borrower's future federal income tax returns, and
any amendments thereto, within thirty (30) days of the filing thereof with
the Internal Revenue Service.
6.6 [INTENTIONALLY OMITTED]
6.7 DESIGNATION OF INVENTORY. Borrower shall, and shall cause Canadian
Guarantor to, now and from time to time hereafter, but not less frequently than
monthly, execute and deliver to Foothill a designation of Inventory specifying
Borrower's and Canadian Guarantor's respective costs and the wholesale market
value of Borrower's and Canadian Guarantor's respective raw materials, work in
process, and finished goods, and further specifying such other information as
Foothill may reasonably request.
6.8 RETURNS. Returns and allowances, if any, as between Borrower and Canadian
Guarantor and their respective Account Debtors shall be on the same basis and in
accordance with the usual customary practices of Borrower and Canadian
Guarantor, respectively, as they exist at the time of the execution and delivery
of this Agreement. If, at a time when no Event of Default has occurred, any
Account Debtor returns any Inventory to Borrower or Canadian Guarantor, Borrower
or Canadian Guarantor, as applicable, promptly shall determine the reason for
such return and, if Borrower or Canadian Guarantor, as
xxxiii
the case may be, accepts such return, issue a credit memorandum (with a copy
to be sent to Foothill) in the appropriate amount to such Account Debtor.
If, at a time when an Event of Default has occurred and is continuing, any
Account Debtor returns any Inventory to Borrower or Canadian Guarantor,
Borrower or Canadian Guarantor promptly shall determine the reason for such
return and, if Foothill consents (which consent shall not be unreasonably
withheld), issue a credit memorandum (with a copy to be sent to Foothill)
in the appropriate amount to such Account Debtor. On a daily basis, each
of Borrower and Canadian Guarantor shall notify Foothill of all returns
and recoveries and of all disputes and claims.
6.9 TITLE TO EQUIPMENT. Upon Foothill's request, Borrower immediately shall,
and shall cause each Guarantor to, deliver to Foothill, properly endorsed, any
and all evidences of ownership of, certificates of title, or applications for
title to any items of Equipment.
6.10 MAINTENANCE OF EQUIPMENT. Borrower shall, and shall cause each Guarantor
to, keep and maintain the Equipment in good operating condition and repair
(ordinary wear and tear excepted), and make all necessary replacements thereto
so that the value and operating efficiency thereof shall at all times be
maintained and preserved. Borrower shall not, and shall cause each Guarantor
to not, suffer or permit any item of Equipment to become a fixture to real
estate or an accession to other property, and the Equipment is now and shall
at all times remain personal property.
6.11 TAXES. All assessments and taxes, whether real, personal, or otherwise,
due or payable by, or imposed, levied, or assessed against any Obligor or any of
its property have been paid, and shall hereafter be paid in full, before
delinquency or before the expiration of any extension period. Borrower shall,
and shall cause each Guarantor to, make due and timely payment or deposit of all
federal, state or provincial, and local taxes, assessments, or contributions
required of it by law, and will execute and deliver to Foothill, on demand,
appropriate certificates attesting to the payment thereof or deposit with
respect thereto. Borrower will, and will cause each Guarantor to, make timely
payment or deposit of all tax payments and withholding taxes required of it by
applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state, and federal income taxes (and the comparable
Canadian counterparts), and will, upon request, furnish Foothill with proof
satisfactory to Foothill indicating that such Obligor has made such payments or
deposits. The foregoing to the contrary notwithstanding, the Obligors shall not
be required to pay or discharge any such assessment or tax (other than payroll
taxes or any taxes that are the subject of a federal tax lien) so long as and to
the extent the validity thereof shall be the subject of a Permitted Protest.
6.12 INSURANCE.
(a) Borrower, at its expense, shall, and shall cause the Guarantors to, keep
the Collateral, the Canadian Collateral, and the Other Guarantor Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as are ordinarily insured against
by other owners in similar businesses. Borrower also shall, and shall cause
the Guarantors also to, maintain public liability, product liability, and
property damage insurance relating to Borrower's or the
xxxiv
Guarantor's ownership and use of the Collateral, the Canadian Collateral, and
the Other Guarantor Collateral, as well as insurance against larceny,
embezzlement, and criminal misappropriation.
(b) All such policies of insurance shall be in such form, with such companies,
and in such amounts as may be reasonably satisfactory to Foothill. All such
policies of insurance (except those of public liability and property damage)
shall contain a 438BFU lender's loss payable endorsement, or an equivalent
endorsement in a form satisfactory to Foothill, showing Foothill as sole loss
payee thereof, and shall contain a waiver of warranties, and shall specify that
the insurer must give at least ten (10) days prior written notice to Foothill
before canceling its policy for any reason. Borrower shall, and shall cause the
Guarantors to, deliver to Foothill certified copies of such policies of
insurance and evidence of the payment of all premiums therefor. All proceeds
payable under any such policy shall be payable to Foothill to be applied on
account of the Obligations.
6.13 FINANCIAL COVENANTS. Borrower shall maintain:
(a) Current Ratio. A ratio of Consolidated Current Assets divided by
Consolidated Current Liabilities of at least six-tenths of one to one (0.6 :
1.0), measured on a fiscal quarter-end basis;
(b) Tangible Net Worth. Tangible Net Worth of not less than a negative Four
Million Dollars ($4,000,000), measured on a fiscal quarter-end basis; and
(c) Working Capital. Working Capital of not less than a negative Seventeen
Million Dollars ($17,000,000), measured on a fiscal quarter-end basis.
6.14 NO SETOFFS OR COUNTERCLAIMS. All payments hereunder and under the other
Loan Documents made by or on behalf of Borrower shall be made without setoff or
counterclaim and free and clear of, and without deduction or withholding for or
on account of, any federal, state or provincial, or local taxes.
6.15 LOCATION OF INVENTORY AND EQUIPMENT. Borrower shall keep the Inventory
and Equipment only at the locations identified on SCHEDULE 6.15; PROVIDED,
HOWEVER, that Borrower may amend SCHEDULE 6.15 so long as such amendment
occurs by written notice to Foothill not less than thirty (30) days prior to
the date on which the Inventory or Equipment is moved to such new location,
so long as such new location is within the continental United States, and so
long as, at the time of such written notification, Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected Foothill's security interests in such assets and also provides to
Foothill a landlord's waiver in form and substance satisfactory to Foothill.
6.16 COMPLIANCE WITH LAWS. Interleaf shall, and either shall on behalf of
each other Obligor or shall cause each other Obligor to, comply with the
requirements of all applicable laws, rules, regulations, and orders of any
governmental authority, including the Fair Labor Standards Act and the
Americans With Disabilities Act (or the comparable Canadian counterpart),
other than laws, rules, regulations, and orders the non-compliance with
which, individually or in the aggregate, would not have and could
xxxv
not reasonably be expected to have a material adverse effect on the
business, operations, condition (financial or otherwise), finances, or
prospects of the Obligors, taken as a whole, or on the value of the
Collateral, the Canadian Collateral, and the Other Guarantor Collateral,
taken as a whole, to Foothill.
6.17 EMPLOYEE BENEFITS.
(a) Borrower promptly shall deliver to Foothill a written statement by the
chief financial officer of an Obligor specifying the nature of any of the
following events and the actions which that Obligor proposes to take with
respect thereto, and in any event within ten (10) days of becoming aware of
any of them, and when known, any action taken or threatened by any party with
respect thereto: (i) an ERISA Event with respect to any Plan; (ii) the
incurrence of an obligation to pay additional premium to the PBGC with
respect to any Plan; and (iii) any lien on the assets of any Debtor arising
in connection with any Plan.
(b) Borrower shall also promptly furnish to Foothill copies prepared or
received by Borrower, Canadian Guarantor, or their respective ERISA
Affiliates of: (i) at the request of Foothill, each annual report and
all accompanying schedules, actuarial reports, financial information
concerning the financial status of each Plan, and schedules showing the
amounts contributed to each Plan by or on behalf of Borrower, Canadian
Guarantor, or their respective ERISA Affiliates for the most recent three
(3) plan years; (ii) all notices of intent to terminate or to have a
trustee appointed to administer any Plan; (iii) all written demands by
the PBGC under ERISA; (iv) all notices required to be sent to employees or to
the PBGC under ERISA or the IRC (or comparable Canadian counterpart); (v) all
written notices received with respect to a Multiemployer Plan concerning
(x) the imposition or amount of withdrawal liability pursuant to ERISA, (y) a
termination described in ERISA, or (z) a reorganization or insolvency described
in ERISA; (vi) the adoption of any new Plan that is subject to ERISA or Section
412 of the IRC (or comparable Canadian counterpart) by Borrower or any ERISA
Affiliate; (vii) the adoption of any amendment to any Plan that is subject to
ERISA or Section 412 of the IRC (or comparable Canadian counterpart), if such
amendment results in a material increase in benefits or Unfunded Benefit
Liability; or (viii) the commencement of contributions by Borrower or any ERISA
Affiliate to any Plan that is subject to ERISA or Section 412 of the IRC (or
comparable Canadian counterpart).
6.18 LEASES. Interleaf shall, and either shall pay on behalf of each other
Obligor or cause each other Obligor to, pay when due all rents and other amounts
payable under any leases to which such Obligor is a party or by which such
Obligor's properties and assets are bound, unless such payments are the subject
of a Permitted Protest. To the extent that any Obligor fails timely to make
payment of such rents and other amounts payable when due under its leases,
Foothill shall be entitled, in its discretion, and without the necessity of
declaring an Event of Default, to reserve an amount equal to such unpaid amounts
from the loan availability created under SECTION 2.1 hereof.
xxxvi
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall be
available and until full and final payment of the Obligations, each Debtor will
not do any of the following without Foothill's prior written consent:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or otherwise
become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth in the latest financial statements of Borrower
submitted to Foothill on or prior to the Effective Date;
(c)Indebtedness secured by Permitted Liens;
(d) unsecured guarantees by Interleaf, in the aggregate guaranteed amount of
not more than $3,000,000, of indebtedness of one or more of the Subsidiaries
of Interleaf listed on SCHEDULE 5.6 (it being acknowledged that, as of the
Effective Date, there is approximately $1,500,000 of such guarantees); and
(e) refinancings, renewals, or extensions of Indebtedness permitted under
clauses (b), (c), and (d) of this SECTION 7.1 (and continuance or renewal of
any Permitted Liens associated therewith) so long as: (i) the terms and
conditions of such refinancings, renewals, or extensions do not materially
impair the prospects of repayment of the Obligations by Borrower, (ii) the
net cash proceeds of such refinancings, renewals, or extensions do not result
in an increase in the aggregate principal amount of the Indebtedness so
refinanced, renewed, or extended, (iii) such refinancings, renewals,
refundings, or extensions do not result in a shortening of the average weighted
maturity of the Indebtedness so refinanced, renewed, or extended, and (iv) to
the extent that Indebtedness that is refinanced was subordinated in right of
payment to the Obligations, then the subordination terms and conditions of
the refinancing Indebtedness must be at least as favorable to Foothill as
those applicable to the refinanced Indebtedness.
7.2 LIENS. Create, incur, assume, or permit to exist, directly or indirectly,
any lien on or with respect to any of its property or assets, of any kind,
whether now owned or hereafter acquired, or any income or profits therefrom,
except for Permitted Liens (including liens that are replacements of Permitted
Liens to the extent that the original Indebtedness is refinanced under SECTION
7.1(e) and so long as the replacement liens secure only those assets or
property that secured the original Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. (a) Enter into any acquisition,
merger, consolidation, reorganization, or recapitalization, or reclassify its
capital stock, or liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution); or (b) except for the Designated Write-Down,
convey, sell, assign, lease, transfer, or otherwise dispose of, in one
transaction or a series of transactions, all or
xxxvii
any substantial part of its business, property, or assets, whether now owned
or hereafter acquired; or (c) acquire by purchase or otherwise all or
substantially all of the properties, assets, stock, or other evidence of
beneficial ownership of any Person; or (d) cause, suffer, or permit any
Guarantor to do any of the foregoing.
7.4 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter (or cause,
suffer, or permit any Guarantor to enter) into any transaction not in the
ordinary and usual course of Borrower's or such Guarantor's (as the case may be)
business, including the sale, lease, or other disposition of, moving,
relocation, or transfer, whether by sale or otherwise, of any of Borrower's or
such Guarantor's (as the case may be) properties or assets (other than sales or
licenses of Collateral to buyers in the ordinary course of Borrower's or such
Guarantor's (as the case may be) business as currently conducted and other than
the Designated Write-Down).
7.5 CHANGE NAME. Change Borrower's (or cause, suffer, or permit any Guarantor
to change that Guarantor's) name, FEIN, business structure, or identity, or add
any new fictitious name, in each case without thirty (30) days prior written
notification to Foothill and unless, at the time of such written notification,
Borrower or such Guarantor provides any financing statements, fixture filings,
or other security-related documents necessary to perfect and continue perfected
Foothill's security interests.
7.6 GUARANTEE. Other than guarantees by Interleaf permitted under SECTION
7.1(d), guarantee or otherwise become in any way liable with respect to (or
cause, suffer, or permit Canadian Guarantor to do the same) the obligations
of any third Person except by endorsement of instruments or items of payment
for deposit to the account of Borrower (or Canadian Guarantor, as the case may
be) or which are transmitted or turned over to Foothill.
7.7 RESTRUCTURE. Interleaf shall not (and shall not cause, suffer, or permit
any other Obligor to) make any change in (a) the principal nature of its
business operations, or (b) without the prior written consent of Foothill, which
consent shall not be unreasonably withheld, the date of its fiscal year.
7.8 PREPAYMENTS. Except in connection with a refinancing permitted by SECTION
7.1(d), prepay any Indebtedness owing to any third Person.
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or indirectly, any
Change of Control.
7.10 CAPITAL EXPENDITURES. The Obligors shall not make any capital
expenditure, or any commitment therefor, in excess of Two Million Dollars
($2,000,000) for any individual transaction or where the aggregate amount of
such capital expenditures, made or committed for in any fiscal year, is in
excess of Four Million Dollars ($4,000,000).
7.11 CONSIGNMENTS. Consign any Inventory or sell any Inventory on bill and
hold, sale or return, sale on approval, or other conditional terms of sale.
xxxviii
7.12 DISTRIBUTIONS. Make any distribution or declare or pay any dividends (in
cash or other property, other than capital stock or options and warrants to
purchase capital stock) on, or purchase, acquire, redeem, or retire any of
Borrower's capital stock, of any class, whether now or hereafter outstanding (or
cause, suffer, or permit any Guarantor to do the same); PROVIDED, HOWEVER,
that IL\Securities may declare and pay cash dividends from time to time to
Interleaf.
7.13 ACCOUNTING METHODS. Modify or change its method of accounting or enter
into, modify, or terminate (or cause, suffer, or permit any Guarantor to do any
of the foregoing) any agreement currently existing, or at any time hereafter
entered into with any third party accounting firm or service bureau for the
preparation or storage of Borrower's (or such Guarantor's, as the case may be)
accounting records without said accounting firm or service bureau agreeing to
provide Foothill information regarding the Collateral, the Canadian Collateral,
and the Other Guarantor Collateral, or Borrower's or such Guarantor's financial
condition. Borrower waives (and shall cause each Guarantor to waive) the right
to assert a confidential relationship, if any, it may have with any accounting
firm or service bureau in connection with any information requested by Foothill
pursuant to or in accordance with this Agreement, and agrees (and shall cause
each Guarantor to agree) that Foothill may contact directly any such accounting
firm or service bureau in order to obtain such information; PROVIDED,
HOWEVER, that Foothill agrees to use reasonable best efforts to provide prior
or concurrent telephonic notice to Interleaf of any such request for information
by Foothill; PROVIDED FURTHER, that the release of such information shall not
be conditioned upon Foothill's providing such notice, nor shall Foothill in any
way or manner be liable or responsible for any failure to provide such notice.
7.14 INVESTMENTS. Directly or indirectly, with its cash and cash equivalents,
acquire any beneficial interest in (including stock, partnership interest, or
other securities of), or make any loan, advance, or capital contribution to, any
Person (or cause, suffer, or permit Canadian Guarantor to do any of the
foregoing); PROVIDED, HOWEVER, that Interleaf may, with its unrestricted
cash and cash equivalents, acquire beneficial interests in, or make loans,
advances, and capital contributions to, one or more Subsidiaries of Interleaf
listed on SCHEDULE 5.6 in an aggregate amount not to exceed Two Million
Dollars ($2,000,000) in any fiscal year, so long as, immediately before and
after giving effect to the acquisition of any such beneficial interest or the
making of any such loan, advance, or capital contribution, (a) there is
Availability of $3,000,000 or more and (b) no more than five percent (5%) of the
aggregate amount of all outstanding accounts payable of Borrower (exclusive of
any accounts payable the validity of which is the subject of a Permitted
Protest) is unpaid within thirty (30) days past the respective original dates on
which such accounts payable first became due and payable.
7.15 TRANSACTIONS WITH AFFILIATES. (a) Directly or indirectly enter into or
permit to exist any material transaction (i) with any Affiliate of Borrower
(other than any Subsidiary of Interleaf) except for transactions that are in the
ordinary course of Borrower's business, upon fair and reasonable terms, that are
fully disclosed to Foothill, and that are no less favorable to Borrower than
would be obtained in an arm's length transaction with a non-Affiliate, and (ii)
with any Subsidiary of Interleaf except for transactions that are in the
ordinary course of Borrower's business and that are on terms substantially
comparable to terms that would be obtained in an arm's length transaction with a
non-Affiliate; and (b) cause, suffer, or permit Canadian Guarantor to directly
or indirectly enter into or permit to exist any
xxxix
material transaction (i) with any Affiliate of Canadian Guarantor (other than
any other Subsidiary of Interleaf) except for transactions that are in the
ordinary course of Canadian Guarantor's business, upon fair and reasonable
terms, that are fully disclosed to Foothill, and that are no less favorable
to Canadian Guarantor than would be obtained in an arm's length transaction
with a non-Affiliate, and (ii) with any other Subsidiary of Interleaf except
for transactions that are in the ordinary course of Canadian Guarantor's
business and that are on terms substantially comparable to terms that would be
obtained in an arm's length transaction with a non-Affiliate.
7.16 SUSPENSION. Suspend or go out of a substantial portion of its business,
or cause, suffer, or permit Canadian Guarantor to do the same.
7.17 [INTENTIONALLY OMITTED].
7.18 USE OF PROCEEDS. Use the proceeds of the advances made hereunder for any
purpose other than: (a) on the Closing Date, to pay transactional costs and
expenses incurred in connection with this Agreement; and (b) thereafter,
consistent with the terms and conditions hereof, for its lawful and permitted
corporate purposes.
7.19 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND EQUIPMENT WITH
Bailees. Borrower shall not, and shall not cause, suffer, or permit any
Guarantor, without thirty (30) days prior written notification to Foothill, to
relocate its chief executive office to a new location and so long as, at the
time of such written notification, Borrower or such Guarantor provides any
financing statements, fixture filings, or other security-related documents
necessary to perfect and continue perfected Foothill's security interests and
also provides to Foothill a landlord's waiver in form and substance
satisfactory to Foothill. The Inventory and Equipment shall not at any time
now or hereafter be stored with a bailee, warehouseman, or similar party
without Foothill's prior written consent.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of default
(each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when declared due and
payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
8.2(a) If any Debtor fails or neglects to perform, keep, or observe, in any
material respect, any term, provision, condition, covenant, or agreement
contained in SECTION 6.2 (COLLATERAL REPORTS) of this Agreement and such
failure continues for a period of five (5) days from the date of such failure or
neglect; (b) If any Debtor fails or neglects to perform, keep, or observe, in
any material respect, any term, provision, condition, covenant, or agreement
contained in SECTIONS 6.3 (SCHEDULE OF ACCOUNTS), 6.4 (FINANCIAL STATEMENTS),
6.5 (TAX RETURNS), 6.7 (DESIGNATION OF INVENTORY), 6.9 (TITLE TO
xl
EQUIPMENT), or 6.16 (COMPLIANCE WITH LAWS) of this Agreement and such failure
continues for a period of ten (10) days from the date of such failure or
neglect; (c) If any Debtor fails or neglects to perform, keep, or observe,
in any material respect, any term, provision, condition, covenant, or agreement
contained in SECTION 6.10 (MAINTENANCE OF EQUIPMENT) of this Agreement and such
failure continues for a period of fifteen (15) days from the date Foothill
provides such Debtor notice of such failure or neglect; (d) If any Obligor
fails or neglects to perform, keep, or observe, in any material respect, any
other term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present or future
agreement between such Obligor and Foothill (other than any such term,
provision, condition, covenant, or agreement that is the subject of another
provision of this Section 8);
8.3 If there is a material impairment of the prospect of repayment of any
portion of the Obligations owing to Foothill, or a material impairment of the
value or priority of Foothill's security interests in the Collateral, the Canada
Collateral, or the Other Guarantor Collateral;
8.4 If any portion (that is material to the Obligors, taken as a whole) of the
properties or assets of any Obligor is attached, seized, subjected to a writ or
distress warrant, or is levied upon, or comes into the possession of any third
Person;
8.5 If an Insolvency Proceeding is commenced by any Obligor;
8.6 If an Insolvency Proceeding is commenced against any Obligor and any of the
following events occur: (a) such Obligor consents to the institution of the
Insolvency Proceeding against it; (b) the petition commencing the Insolvency
Proceeding is not timely controverted; (c) the petition commencing the
Insolvency Proceeding is not dismissed within forty-five (45) calendar days of
the date of the filing thereof; PROVIDED, HOWEVER, that, during the pendency
of such period, Foothill shall be relieved of its obligation to make additional
advances or issue additional L/Cs or L/C Guarantees hereunder; (d) an interim
trustee is appointed to take possession of all or a substantial portion of the
properties or assets of, or to operate all or any substantial portion of the
business of, such Obligor; or (e) an order for relief shall have been issued or
entered therein;
8.7 If any Obligor is enjoined, restrained, or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs;
8.8 If a notice of lien, levy, or assessment is filed of record with respect to
any of any Obligor's properties or assets by the United States or Canada, or any
department, agency, or instrumentality thereof, or by any state or province,
county, municipal, or governmental agency, or if any taxes or debts owing at any
time hereafter to any one or more of such entities becomes a lien, whether
choate or otherwise, upon any of any Obligor's properties or assets and the same
is not paid on the payment date thereof;
8.9 If a judgment or other claim becomes a lien or encumbrance upon any portion
(that is material to the Obligors, taken as a whole) of any Obligor's properties
or assets;
xli
8.10 If there is a default in any material agreement to which any Obligor is a
party with one or more third Persons resulting in a right by such third Persons,
irrespective of whether exercised, to accelerate the maturity of such Obligor's
obligations thereunder;
8.11 If Borrower or Canadian Guarantor makes any payment on account of
Indebtedness that has been contractually subordinated in right of payment to the
payment of the Obligations, except to the extent such payment is permitted by
the terms of the subordination provisions applicable to such Indebtedness;
8.12 If any material misrepresentation exists now or hereafter in any warranty,
representation, statement, or report made to Foothill by Borrower or any
Guarantor or any officer, employee, agent, or director thereof pursuant to this
Agreement or any other Loan Document, or if any such warranty or representation
is withdrawn;
8.13 If the obligation of any Guarantor or other third Person under any Loan
Document is limited or terminated by operation of law or by such Guarantor or
other third Person thereunder; or
8.14 If (a) with respect to any Plan, there shall occur any of the following
which could reasonably be expected to have a material adverse effect on the
financial condition of Borrower or Canadian Guarantor: (i) the violation of any
of the provisions of ERISA; (ii) the loss by a Plan intended to be a Qualified
Plan of its qualification under Section 401(a) of the IRC (or the comparable
Canadian counterpart); (iii) the incurrence of liability under ERISA;
(iv) a failure to make full payment when due of all amounts which, under the
provisions of any Plan or applicable law, Borrower, Canadian Guarantor, or
any ERISA Affiliate is required to make; (v) the filing of a notice of intent
to terminate a Plan under ERISA; (vi) a complete or partial withdrawal of
Borrower, Canadian Guarantor, or an ERISA Affiliate from any Plan; (vii) the
receipt of a notice by the plan administrator of a Plan that the PBGC has
instituted proceedings to terminate such Plan or appoint a trustee to
administer such Plan; (viii) a commencement or increase of contributions to,
or the adoption of or the amendment of, a Plan; and (ix) the assessment against
Borrower, Canadian Guarantor, or any ERISA Affiliate of a tax under
Section 4980B of the IRC (or the comparable Canadian counterpart); or (b) the
Unfunded Benefit Liability of all of the Plans of Borrower, Canadian Guarantor,
and their ERISA Affiliates shall, in the aggregate, exceed Fifty Thousand
Dollars ($50,000).
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the continuation, of
an Event of Default Foothill may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by any of the
other Loan Documents, or otherwise, immediately due and payable;
xlii
(b) Cease advancing money or extending credit to or for the benefit of Borrower
under this Agreement, under any of the Loan Documents, or under any other
agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan Documents as to any
future liability or obligation of Foothill, but without affecting Foothill's
rights and security interests in the Collateral, the Canadian Collateral, the
Other Guarantor Collateral and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account Debtors for
amounts and upon terms which Foothill considers advisable, and in such cases,
Foothill will credit Borrower's loan account with only the net amounts received
by Foothill in payment of such disputed Accounts after deducting all Foothill
Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust for Foothill,
segregate all returned Inventory from all other property of Borrower or in
Borrower's possession and conspicuously label said returned Inventory as the
property of Foothill;
(f) Without notice to or demand upon Borrower or any Guarantor, make such
payments and do such acts as Foothill considers necessary or reasonable to
protect its security interests in the Collateral. Borrower agrees to assemble
the Collateral if Foothill so requires, and to make the Collateral available to
Foothill as Foothill may designate. Borrower authorizes Foothill to enter the
premises where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or lien that in Foothill's determination appears to
conflict with its security interests and to pay all expenses incurred in
connection therewith. With respect to any Debtor's owned premises, Borrower
hereby grants Foothill a license to enter into possession of such premises and
to occupy the same, without charge, for up to one hundred twenty (120) days in
order to exercise any of Foothill's rights or remedies provided herein, at law,
in equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly waived), and without
constituting a retention of any collateral in satisfaction of an obligation
(within the meaning of Section 9505 of the UCC), set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Foothill
(including any amounts received in the Lockbox Accounts), or (ii) indebtedness
at any time owing to or for the credit or the account of Borrower held by
Foothill;
(h) Hold, as cash collateral, any and all balances and deposits of Borrower held
by Foothill, and any amounts received in the Lockbox Accounts, to secure the
full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
advertise for sale, and sell (in the manner provided for herein) the Collateral.
Each Debtor hereby grants to Foothill a license or other right to use, without
charge, such Debtor's labels, patents, copyrights, source code, rights of use of
any name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
the Canadian Collateral, or the Other
xliii
Guarantor Collateral in completing production of, advertising for sale, and
selling any Collateral, the Canadian Collateral, or the Other Guarantor
Collateral, and the Debtors' rights under all licenses and all franchise
agreements shall inure to Foothill's benefit;
(j) Sell the Collateral at either a public or private sale, or both, by way of
one or more contracts or transactions, for cash or on terms, in such manner and
at such places (including Borrower's premises) as Foothill determines is
commercially reasonable. It is not necessary that the Collateral be present at
any such sale;
(k)Foothill shall give notice of the disposition of the Collateral as follows:
(1) Foothill shall give the Debtor with rights in such Collateral and each
holder of a security interest in the Collateral who has filed with Foothill a
written request for notice, a notice in writing of the time and place of public
sale, or, if the sale is a private sale or some other disposition other than a
public sale is to be made of the Collateral, then the time on or after which the
private sale or other disposition is to be made;
(2) The notice shall be personally delivered or mailed, postage prepaid, to
such Debtor as provided in SECTION 12, at least five (5) days before the date
fixed for the sale, or at least five (5) days before the date on or after which
the private sale or other disposition is to be made; no notice needs to be given
prior to the disposition of any portion of the Collateral that is perishable or
threatens to decline speedily in value or that is of a type customarily sold on
a recognized market. Notice to Persons other than Borrower claiming an interest
in the Collateral shall be sent to such addresses as they have furnished to
Foothill;
(3) If the sale is to be a public sale, Foothill also shall give notice of the
time and place by publishing a notice one time at least five (5) days before the
date of the sale in a newspaper of general circulation in the county in which
the sale is to be held if such notice is required by applicable law;
(l) Foothill may credit bid and purchase at any public sale; and
(m) Any deficiency that exists after disposition of the Collateral as provided
above will be paid immediately by Borrower. Any excess will be returned,
without interest and subject to the rights of third Persons, by Foothill to
Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under this Agreement,
the Loan Documents, and all other agreements shall be cumulative. Foothill
shall have all other rights and remedies not inconsistent herewith as provided
under the Code, by law, or in equity. No exercise by Foothill of one right or
remedy shall be deemed an election, and no waiver by Foothill of any Event of
Default shall be deemed a continuing waiver. No delay by Foothill shall
constitute a waiver, election, or acquiescence by it.
xliv
10. TAXES AND EXPENSES.
If any Obligor fails to pay any monies (whether taxes, rents, assessments,
insurance premiums, or otherwise) due to third Persons, or fails to make any
deposits or furnish any required proof of payment or deposit, all as required
under the terms of this Agreement or any other Loan Document, then Foothill, in
its discretion, may do any or all of the following: (a) make payment of the
same or any part thereof; (b) set up such reserves in Borrower's loan account as
Foothill deems necessary to protect Foothill from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the type described in
SECTION 6.12, and take any action with respect to such policies as Foothill
deems prudent; PROVIDED, HOWEVER, that Foothill shall use reasonable best
efforts to provide prior or concurrent notice to the Debtors of such action
taken by Foothill; PROVIDED FURTHER that the failure of Foothill to provide
such notice shall not affect the validity of the action taken, nor shall
Foothill in any way or manner be liable or responsible for any such failure.
Any such amounts paid by Foothill shall constitute Foothill Expenses. Any such
payments made by Foothill shall not constitute an agreement by Foothill to make
similar payments in the future or a waiver by Foothill of any Event of Default
under this Agreement. Foothill need not inquire as to, or contest the validity
of, any such expense, tax, security interest, encumbrance, or lien and the
receipt of the usual official notice for the payment thereof shall be conclusive
evidence that the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Foothill on which Borrower may in any way be liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill complies with
its obligations, if any, under Section 9207 of the Code, Foothill shall not in
any way or manner be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or arising in any manner or
fashion from any cause; (c) any diminution in the value thereof; or (d) any act
or default of any carrier, warehouseman, bailee, forwarding agency, or other
Person. All risk of loss, damage, or destruction of the Collateral shall be
borne by Borrower.
11.3 INDEMNIFICATION. Borrower agrees to defend, indemnify, save, and hold
Foothill and its officers, employees, and agents harmless against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
Person arising out of or relating to the transactions contemplated by this
Agreement or any other Loan Document, including any claim of any broker or
finder, and (b) all losses (including attorneys fees and disbursements) in any
way suffered, incurred, or paid by Foothill as a result of or in any way arising
out of, following, or consequential to the transactions contemplated by this
Agreement or any other Loan Document. This provision shall survive the
termination of this Agreement.
xlv
11.4 SURETYSHIP WAIVERS AND CONSENTS. Each Debtor acknowledges that the
obligations of such Debtor undertaken herein might be construed to consist, at
least in part, of the guaranty of obligations of Persons or entities other than
such Debtor (including the other Debtors party hereto) and, in full recognition
of that fact, each Debtor consents and agrees that Foothill may, at any time and
from time to time, without notice or demand, whether before or after any actual
or purported termination, repudiation or revocation of this Agreement by any one
or more Debtors, and without affecting the enforceability or continuing
effectiveness hereof as to each Debtor: (a) if it has so agreed with the other
Debtor, supplement, restate, modify, amend, increase, decrease, extend, renew,
accelerate or otherwise change the time for payment or the terms of the
Obligations or any part thereof, including any increase or decrease of the
rate(s) of interest thereon; (b) supplement, restate, modify, amend, (if it has
so agreed with the other Debtor) increase, decrease or waive, or enter into or
give any agreement, approval or consent with respect to, the Obligations or any
part thereof, or any of the Loan Documents or any additional security or
guarantees, or any condition, covenant, default, remedy, right, representation
or term thereof or thereunder; (c) accept new or additional instruments,
documents or agreements in exchange for or relative to any of the Loan Documents
or the Obligations or any part thereof; (d) accept partial payments on the
Obligations; (e) receive and hold additional security or guarantees for the
Obligations or any part thereof; (f) release, reconvey, terminate, waive,
abandon, fail to perfect, subordinate, exchange, substitute, transfer or enforce
any security or guarantees, and apply any security and direct the order or
manner of sale thereof as Foothill in its sole and absolute discretion may
determine; (g) release any Person from any personal liability with respect to
the Obligations or any part thereof; (h) settle, release on terms satisfactory
to Foothill or by operation of applicable laws or otherwise liquidate or enforce
any Obligations and any security therefor or guaranty thereof in any manner,
consent to the transfer of any security and bid and purchase at any sale; or (i)
consent to the merger, change or any other restructuring or termination of the
corporate or partnership existence of any Debtor or any other Person, and
correspondingly restructure the Obligations, and any such merger, change,
restructuring or termination shall not affect the liability of any Debtor or the
continuing effectiveness hereof, or the enforceability hereof with respect to
all or any part of the Obligations.
Upon the occurrence and during the continuance of any Event of Default, Foothill
may enforce this Agreement independently as to each Debtor and independently of
any other remedy or security Foothill at any time may have or hold in connection
with the Obligations, and it shall not be necessary for Foothill to marshal
assets in favor of any Debtor or any other Person or to proceed upon or against
or exhaust any security or remedy before proceeding to enforce this Agreement.
Each Debtor expressly waives any right to require Foothill to marshal assets in
favor of any Debtor or any other Person or to proceed against any other Debtor
or any collateral provided by any Person, and agrees that Foothill may proceed
against Debtors or any collateral in such order as it shall determine in its
sole and absolute discretion.
Foothill may file a separate action or actions against any Debtor, whether
action is brought or prosecuted with respect to any security or against any
other Person, or whether any other Person is joined in any such action or
actions. Each Debtor agrees that Foothill and any Debtor and any Affiliate of
any Debtor may deal with each other in connection with the Obligations or
otherwise, or
xlvi
alter any contracts or agreements now or hereafter existing between any of
them, in any manner whatsoever, all without in any way altering or affecting
the continuing efficacy of this Agreement.
Foothill's rights hereunder shall be reinstated and revived, and the
enforceability of this Agreement shall continue, with respect to any amount at
any time paid on account of the Obligations which thereafter shall be required
to be restored or returned by Foothill, all as though such amount had not been
paid. The rights of Foothill created or granted herein and the enforceability
of this Agreement at all times shall remain effective to cover the full amount
of all the Obligations even though the Obligations, including any part thereof
or any other security or guaranty therefor, may be or hereafter may become
invalid or otherwise unenforceable as against any Debtor and whether or not any
other Debtor shall have any personal liability with respect thereto.
To the maximum extent permitted by applicable law, each Debtor expressly waives
any and all defenses now or hereafter arising or asserted by reason of (a) any
disability or other defense of any other Debtor with respect to the Obligations,
(b) the unenforceability or invalidity of any security or guaranty for the
Obligations or the lack of perfection or continuing perfection or failure of
priority of any security for the Obligations, (c) the cessation for any cause
whatsoever of the liability of any other Debtor (other than by reason of the
full payment and performance of all Obligations), (d) any failure of Foothill to
marshal assets in favor of any Debtor or any other Person, (e) any failure of
Foothill to give notice of sale or other disposition of collateral to any Debtor
or any other Person or any defect in any notice that may be given in connection
with any sale or disposition of collateral, (f) any failure of Foothill to
comply with applicable law in connection with the sale or other disposition of
any collateral or other security for any Obligation, including any failure of
Foothill to conduct a commercially reasonable sale or other disposition of any
collateral or other security for any Obligation, (g) any act or omission of
Foothill or others that directly or indirectly results in or aids the
discharge or release of any of any Debtor or the Obligations or any security
or guaranty therefor by operation of law or otherwise, (h) any law
which provides that the obligation of a surety or guarantor must neither be
larger in amount nor in other respects more burdensome than that of the
principal or which reduces a surety's or guarantor's obligation in proportion to
the principal obligation, (i) any failure of Foothill to file or enforce a claim
in any bankruptcy or other proceeding with respect to any Person, (j) the
election by Foothill of the application or non-application of Section 1111(b)(2)
of the United States Bankruptcy Code, (k) any extension of credit or the grant
of any lien under Section 364 of the United States Bankruptcy Code, (l) any use
of cash collateral under Section 363 of the United States Bankruptcy Code, (m)
any agreement or stipulation with respect to the provision of adequate
protection in any bankruptcy proceeding of any Person, (n) the avoidance of any
lien in favor of Foothill for any reason, or (o) any action taken by Foothill
that is authorized by this section or any other provision of any Loan Document.
Until such time as all of the Obligations have been fully, finally, and
indefeasibly paid in full in cash: (i) each Debtor hereby waives and postpones
any right of subrogation it has or may have as against any other Debtor with
respect to the Obligations; and (ii) in addition, each Debtor also hereby waives
and postpones any right to proceed or to seek recourse against or with respect
to any property or asset of any other Debtor. Each Debtor expressly waives all
setoffs and counterclaims and all presentments, demands for payment or
performance, notices of nonpayment or nonperformance, protests, notices of
protest, notices of dishonor and all other notices
xlvii
or demands of any kind or nature whatsoever with respect to the Obligations,
and all notices of acceptance of this Agreement or of the existence, creation
or incurring of new or additional Obligations.
In the event that all or any part of the Obligations at any time are secured by
any one or more deeds of trust or mortgages or other instruments creating or
granting liens on any interests in real property, each Debtor authorizes
Foothill on Foothill's behalf), upon the occurrence of and during the
continuance of any Event of Default, at its sole option, without notice or
demand and without affecting the obligations of any Debtor, the enforceability
of this Agreement, or the validity or enforceability of any liens of, or for the
benefit of, Foothill on any collateral, to foreclose any or all of such deeds of
trust or mortgages or other instruments by judicial or nonjudicial sale.
To the fullest extent permitted by applicable law, each Debtor expressly waives
any defenses to the enforcement of this Agreement or any rights of Foothill
created or granted hereby or to the recovery by Foothill against any Debtor or
any other Person liable therefor of any deficiency after a judicial or
nonjudicial foreclosure or sale, even though such a foreclosure or sale may
impair the subrogation rights of Debtors and may preclude Debtors from obtaining
reimbursement or contribution from other Debtors. Each Debtor expressly waives
any suretyship defenses or benefits that it otherwise might or would have under
applicable law. Each Debtor expressly waives any right to receive notice of any
judicial or nonjudicial foreclosure or sale of any real property or interest
therein of another Debtor that is subject to any such deeds of trust or
mortgages or other instruments and any Debtor's failure to receive any such
notice shall not impair or affect such Debtor's obligations or the
enforceability of this Agreement or any rights of Foothill created or granted
hereby. WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS SECTION, EACH DEBTOR WAIVES ALL RIGHTS AND
DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY FOOTHILL, EVEN THOUGH THAT
ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH RESPECT TO SECURITY
FOR THE OBLIGATIONS, HAS DESTROYED SUCH DEBTOR'S RIGHTS OF SUBROGATION AND
REIMBURSEMENT AGAINST THE PRINCIPAL DEBTOR BY THE OPERATION LAW OR OTHERWISE.
Debtors and each of them warrant and agree that each of the waivers and
consents set forth herein are made after consultation with legal counsel and
with full knowledge of their significance and consequences, with the
understanding that events giving rise to any defense or right waived may
diminish, destroy or otherwise adversely affect rights which Debtors otherwise
may have against other Debtors, Foothill or others, or against Collateral. If
any of the waivers or consents herein are determined to be contrary to any
applicable law or public policy, such waivers and consents shall be effective to
the maximum extent permitted by law.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by any party
relating to this Agreement or any other Loan Document shall be in writing and
(except for financial statements and
xlviii
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by registered or certified
mail, postage prepaid, return receipt requested, or by prepaid telex, TWX,
telefacsimile, or telegram (with messenger delivery specified) to Borrower or
to Foothill, as the case may be, at its address set forth below:
IF TO INTERLEAF (TO OR any other Obligor in care of Interleaf pursuant to any
other Loan Document):
INTERLEAF, INC.
Prospect Place, 9 Hillside Avenue
Waltham, Massachusetts 02154
Attn: John K. Hyvnar, Esq.
Fax: 617/290-4977
IF TO AVALANCHE: AVALANCHE DEVELOPMENT COMPANY
c/o INTERLEAF, INC.
Prospect Place, 9 Hillside Avenue
Waltham, Massachusetts 02154
Attn: John K. Hyvnar, Esq.
Fax: 617/290-4977
IF TO FOOTHILL: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax: 310/575-3435
WITH COPIES TO: BROBECK, PHLEGER & HARRISON
550 South Hope Street
Los Angeles, California 90071
Attn: John Francis Hilson, Esq.
Fax: 213/745-3345
The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other. All
notices or demands sent in accordance with this SECTION 12, other than notices
by Foothill in connection with Sections 9504 or 9505 of the Code, shall be
deemed received on the earlier of the date of actual receipt or three (3) days
after the deposit thereof in the mail. Borrower acknowledges and agrees that
notices sent by Foothill in connection with Sections 9504 or 9505 of the Code
shall be deemed sent when deposited in the mail or transmitted by telefacsimile
or other similar method set forth above.
xlix
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS
ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES
AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT
SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE
COUNTY OF SUFFOLK, COMMONWEALTH OF MASSACHUSETTS, OR THE COUNTY OF LOS ANGELES,
STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN
WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS
SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH DEBTOR AND
FOOTHILL WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13. EACH
DEBTOR AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS
OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
EACH DEBTOR AND FOOTHILL REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers delivered to
Foothill may be destroyed or otherwise disposed of by Foothill four (4) months
after they are delivered to or received by Foothill, unless Borrower requests,
in writing, the return of said documents, schedules, or other papers and makes
arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed effective when
executed by Borrower and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of the parties;
PROVIDED, HOWEVER, that Borrower may not assign this
1
Agreement or any rights or duties hereunder without Foothill's prior
written consent and any prohibited assignment shall be absolutely void.
No consent to an assignment by Foothill shall release Borrower from its
Obligations. Foothill may assign this Agreement and its rights and
duties hereunder and no consent or approval by Borrower is required
in connection with any such assignment. Foothill reserves the right to
sell, assign, transfer, negotiate, or grant participations in all or any part
of, or any interest in Foothill's rights and benefits hereunder. In connection
with any such assignment or participation, Foothill may disclose all documents
and information which Foothill now or hereafter may have relating to Borrower
or Borrower's business. To the extent that Foothill assigns its rights and
obligations hereunder to a third Person, Foothill thereafter shall be released
from such assigned obligations to Borrower and such assignment shall effect a
novation between Borrower and such third Person.
15.3 SECTION HEADINGS. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each section applies equally to this entire Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any uncertainty or ambiguity
herein shall be construed or resolved against Foothill or Borrower, whether
under any rule of construction or otherwise. On the contrary, this Agreement
has been reviewed by all parties and shall be construed and interpreted
according to the ordinary meaning of the words used so as to fairly accomplish
the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement can only be amended by a writing
signed by both Foothill and Borrower.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be executed in
any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of a manually executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver a manually executed
counterpart of this Agreement but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or payment of
the Obligations by Borrower or any Guarantor or the transfer by any of the
Debtors to Foothill of any property of such party should for any reason
subsequently be declared to be void or voidable under any provincial or state or
federal law relating to creditors' rights, including provisions of the
Bankruptcy Code relating to fraudulent conveyances, preferences, and other
voidable or recoverable payments of money or
li
transfers of property (collectively, a "Voidable Transfer"), and if Foothill
is required to repay or restore, in whole or in part, any such Voidable
Transfer, or elects to do so upon the reasonable advice of its counsel, then,
as to any such Voidable Transfer, or the amount thereof that Foothill is
required or elects to repay or restore, and as to all reasonable costs,
expenses, and attorneys fees of Foothill related thereto, the liability of
Borrower or such Guarantor automatically shall be revived, reinstated, and
restored and shall exist as though such Voidable Transfer had never been made.
15.9 INTEGRATION. This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
lii
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in Los Angeles, California.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /S/ PATRICIA MCGLOUGHLIN
Title: VICE PRESIDENT
INTERLEAF, INC.,
a Massachusetts corporation
By /S/RICHARD P. DELIO
Title: SR. VP AND CHIEF FINANCIAL OFFICER
AVALANCHE DEVELOPMENT COMPANY,
a Colorado corporation
By /S/ JOHN K HYVNAR
Title: SECRETARY
ACKNOWLEDGED AND AGREED
TO BE BOUND:
INTERLEAF CANADA INC.,
a corporation incorporated under
the laws of the Province of Ontario
By /S/ JOHN K. HYVNAR
Title: PRESIDENT
S-1
INTERLEAF SECURITIES CORPORATION,
a Massachusetts corporation
By /S/ JOHN K. HYVNAR
Title: CLERK
S-2
SCHEDULE P-1
------------
Lienholder
----------
1. First National Bank of Boston ("Bank of Boston") -- cash amounts of
$1.7 million pledged by Interleaf to secure Bank of Boston guarantee to
German tax authorities concerning Interleaf's obligation to pay
withholding tax on software royalties for fiscal 1990.
SCHEDULE 5.6
------------
SUBSIDIARIES
------------
Subsidiary Jurisdiction of Incorporation
---------- -----------------------------
1. Avalanche Development Company Colorado
2. Interleaf Australia Pty. Ltd. New South Wales, Australia
3. Interleaf Benelux, N.V./S.A. Netherlands
4. Interleaf Canada, Inc. Ontario, Canada
5. Interleaf France, S.A. France
6. Interleaf GmbH Germany
7. Interleaf Japan, Inc. Japan
8. Interleaf Securities Corporation Massachusetts
9. Interleaf Switzerland, S.A. Switzerland
10. Interleaf U.K. Ltd. United Kingdom
11. Interleaf World Trade, Inc. Delaware
SCHEDULE 5.8
------------
In March, 1994 PruTech Research and Development III ("PruTech") filed an
arbitration demand against the Company contesting the Company's operation
of the Interleaf-PruTech Joint Venture ("Joint Venture"). Specifically,
PruTech alleged that the Company was required to make mandatory quarterly
payouts and that the Venture owned technology had been used in non-Venture
products for which compensation was due to the Venture. The Company denied
the claim and has counterclaimed against PruTech challenging PruTech's
absolute refusal to provide additional funding as reasonable. The Company
believes that it has operated the Venture fairly and equitably and believes
it has meritorious defenses. At this time, it is not possible to estimate
what, if any, damages the Company may pay.
In April 1995, the Company received a tax assessment of approximately
$1.7 million from the German tax authorities pertaining to certain withholding
taxes pertaining to fiscal 1990. The Company is currently reviewing this
tax matter, and has posted a guarantee, through The First National Bank of
Boston in said amount to said tax authorities. The Company has secured this
guarantee by depositing a cash bond with said bank.
SCHEDULE 6.15
-------------
a. Interleaf, Inc.
i) Prospect Place
9 Hillside Avenue
Waltham, Massachusetts 02154
ii) Two Ravinia Drive
Suite 200
Atlanta, Georgia 30346
iii) One Galleria Tower
13355 Noel Road
Suite 500
Dallas, Texas 75240
iv) 7833 Walker Drive
Suite 460
Greenbelt, Maryland 20770
v) Two Mid America
Suite 630
Oakbrook Terrace, Illinois 60181
vi) 300 North Continental Boulevard
Suite 190
El Segundo, California 90245
vii) Three Lagoon Drive
Suite 270
Redwood Shores, California 94065
viii) Equipment consisting of notebook computers, laptops, fax machines
located at residences of sales associates, approximately $8,000 per
associate.
b. Avalanche Development Company
4999 Pearl East Circle, Suite 100
Boulder, Colorado 80301
EX-10.(S)
3
EXHIBIT 10(S)
Exhibit 10(s)
June 5, 1995
G. Gordon M. Large
27 East Gate Road
Lloyd Harbor, NY 11743
Dear Gordon,
It is with great pleasure that I extend the following offer to have you join
Interleaf, Inc. as Executive Vice President and Chief Financial Officer. We
are enthusiastic about getting going and I know that I speak for the rest of
the executive board members and Board of Directors in welcoming you to the
team, if you decide to say "yes" to Interleaf.
The following outlines the elements of our offer:
POSITION: Executive Vice President and Chief Financial Officer
ON TARGET EARNINGS: $320,000
SALARY: Base salary of $210,000 per year subject to annual review by the
Compensation Committee of the Board of Directors.
RELOCATION:
You agree to relocate to the Boston area on or before
3/31/96. In the interim, Interleaf will pick up all reasonable living and
travel expenses while you commute between your home and our Waltham office.
Also, Interleaf will pay for four house-hunting trips for you and your spouse
during this period. (If these reimbursements are taxable income, Interleaf
will also provide a full tax grossup.)
Interleaf will also reimburse you for the following costs:
(1) all closing costs and real estate fees in selling your
current home; (2) all closing costs, real estate fees and mortgage
points on a new mortgage in purchasing a house in the Boston area; (3) actual
moving costs for this relocation; and (4) up to three months of carrying
costs (mortgage payments, insurance and basic maintenance) on your current
house if you relocate to either a rented or purchased house in the Boston
area before your current house is sold. (This applies to your primary
residence only.) It is understood that you may not be able to sell your
current house before 3/31/96, and that you may elect to rent rather than
purchase for some time after you relocate. As a result, some or all costs
listed above may not occur until after 3/31/96, but Interleaf will
nevertheless reimburse you for such costs provided they are incurred or you
have become obligated to incur them while you are an employee of the company
or any successor.
BONUS: (See attached)
(G) Quarterly and annual bonuses of $110,000 at on target performance,
of which 50% ($55,000) is guaranteed. Your 1996 plan is attached.
STOCK OPTIONS:
In order to induce to accept the offer of employment set
in this letter, Interleaf will grant to you a stock option
for the purchase of 225,000 shares of common stock of Interleaf, Inc., at an
exercise price equal to the fair market value of the Interleaf common stock
on the day you start your employment with Interleaf. This option will vest
over a four year period.
BENEFITS:
Commensurate with Interleaf's benefit package for senior management,
the company will provide complete health, dental, short and long term
disability benefits, as well as life insurance in the amount of $500,000.
If Interleaf's benefit does not cover current pre-existing conditions,
then Interleaf agrees to reimburse employee for the COBRA payments for up
to one year.
SEVERANCE:
In the event, during the first two years of employment, of the company or any
successor terminating your employment for any reason but cause, we will
provide one year of on target compensation. Any reduction of salary or on
target earnings, reduction in position, or material reduction in
responsibilities shall be deemed to be constructive termination, and you may
elect to leave the company or its successor and receive the payment described
above.
CHANGE OF CONTROL PROVISIONS:
In the event, during the first five years of your employment, that
the company is purchased or merged into another company, substantially
all of the assets of the company are sold, effective control of the company
is acquired by another company or an investment group, or a similar
transaction occurs, we will vest one-half of all unvested stock options at
the time such event occurs.
START DATE: June 19, 1995
Gordon, as Executive VP and Chief Financial Officer, we are truly looking
to you to help lead the company over the coming years.
Sincerely,
/S/ ED KOEPFLER
President and CEO
cc. Clinton P. Harris
Accepted by:
/S/ G. GORDON M. LARGE Date 6/5/95
EX-11
4
EXHIBIT 11
INTERLEAF, INC.
EXHIBIT 11-COMPUTATION OF EARNINGS PER SHARE
Three months ended
June 30
1995 1994
------- --------
(unaudited)
In thousands, except for per share amounts
PRIMARY
Weighted average shares outstanding of Common Stock 14,362 13,760
Dilutive Senior Series B Convertible Preferred Stock 2,323 --
Dilutive stock options 875 --
Dilutive stock purchase warrants 78 --
Dilutive stock purchase plan rights 10 --
------- --------
Total 17,648 13,760
======= ========
Net income (loss) $472 $(8,153)
======= ========
Net income (loss) per share $.03 $(.59)
======= ========
Fully Diluted
Weighted average shares outstanding of Common Stock 14,362 13,760
Dilutive Senior Series B Convertible Preferred Stock 2,323 --
Dilutive stock options 1,133 --
Dilutive stock purchase warrants 203 --
Dilutive stock purchase plan rights 14 --
------- -------
Total 18,035 13,760
======= ========
Net income (loss) $472 $(8,153)
======= ========
Net income (loss) per share $.03 $(.59)
======= ========
The dilutive effect of stock options, stock purchase warrants, and stock
purchase plan rights are calculated using the treasury stock method. Under
this method, these common stock equivalents are assumed to be exercised and
proceeds from the exercise are assumed to be used to repurchase common stock
at the average market price for primary income (loss) per share and the higher
of the end of the period or average market price for fully diluted income
(loss) per share. The dilutive effect of Convertible Preferred Stock is
calculated using the if-converted method.
EX-27
5
EXHIBIT 27
5
1,000
3-MOS
MAR-31-1996
JUN-30-1995
12,624
0
19,335
1,569
175
32,453
47,622
37,656
46,991
34,887
0
145
0
173
11,765
46,991
9,437
23,127
1,660
7,838
14,702
206
7
472
0
472
0
0
0
472
0.03
0.03